Most Witnesses At IRS Hearing Criticize Proposed Premium Tax Credit Rules

Many witnesses at a November 17 Internal Revenue Service public hearing on health insurance premium tax credits and employer regulations said that proposed IRS regulations on the health insurance premium tax credit will deny the credit to eligible families and deprive them of access to family health insurance coverage. But one employer group disagreed, testifying that the government had correctly interpreted the law.

Rule’s Impact

Beginning in 2014, the Patient Protection and Affordable Care Act (ACA) provides a refundable health insurance premium tax credit to individuals and families who cannot obtain affordable health insurance through their employers or certain government-sponsored plans. The credit is designed to help taxpayers pay for the cost of health insurance obtained through state-established Health Insurance Exchanges. The taxpayer must have household income between 100% and 400% of the federal poverty level (FPL), cannot be claimed as a dependent, and must file a joint return if married.

An individual cannot claim the credit if the individual is eligible for minimum essential coverage. An employee is eligible for minimum essential coverage (and therefore not entitled to the credit) only if the employee’s share of the insurance premiums is affordable and the insurance coverage provides minimum value.

Coverage is not affordable if the employee’s required contribution to the plan exceeds 9.5% of the applicable taxpayer’s household income for the year. The preamble to the regulations states that the required contribution is the amount that would be paid by the individual for self-only coverage, even if the individual would in fact be purchasing family coverage or other coverage for multiple individuals. This affordability test was the primary issue at the hearing.

Joe Touschner, with the Georgetown University Health Policy Institute Center for Children and Families, testified that the proposed regulation creates a family penalty in the affordability test. This approach will leave children without an affordable option for health insurance, he indicated. Other programs such as the Children’s Health Insurance Program (CHIP) are not a reliable source of alternative coverage, Mr. Touschner said.

He also noted the problem of premium stacking, where a family has to pay more than one premium to provide coverage. These additional premiums would push family insurance costs well in excess of the affordability limits. Mr. Touschner said that the IRS has the regulatory authority to adopt a family-based affordability test.

These comments were echoed by most of the 14 speakers at the hearing. Dana Cope, executive director of the State Employees Association of North Carolina, said “this rule would effectively deny state employees the premium tax credits available” through the exchanges and “would nullify the major goal of the ACA to expand equal access to health care.” She noted that North Carolina’s health plan does not subsidize family coverage and that employees could owe 20% of their family income just to provide coverage for the entire family. Ms. Cope said that the correct interpretation of affordability should be based on the cost of both self-only coverage and family or dependent coverage.

Lynn Quincy of Consumers Union said that the rule would leave dependents uninsured and families underinsured. She also expressed concern that the rule would undermine the system of employer-provided health insurance coverage. She said the rule would be particularly tough on families with income at 200% to 300% of FPL.

Dania Palanker of the Service Employees International Union and Kim Bailey of Families USA strongly opposed the government’s interpretation of the affordability test. Ms. Bailey testified that the rules allowing premium variations for wellness coverage also could drive up the cost of health insurance and impose substantial burdens on families. The wellness surcharge could run as high as 30%of premiums, she stated, and far exceeds the cost of affordable coverage. The wellness costs should be included in applying the 9.5% ceiling on affordable coverage.

Contrary View

The group Employers for Flexibility in Health Care (EFHC), a coalition of businesses and trade associations in retail and service-related industries, took a contrary view. It is necessary to look at the provision as a whole, Anne Phelps of Washington Council Ernst & Young testified. “Treasury correctly interpreted the affordability standard.” She also said that EFHC wants employer-provided health insurance coverage to remain the backbone of the insurance market, but that the law creates many disincentives for employers.

Ms. Phelps commented that the minimum value standard for adequate coverage is not clearly defined. The standard is viewed as requiring 60% of full benefits on an actuarial basis, but should not be interpreted to require a particular kind of plan, Ms. Phelps said. Employers should have the flexibility to offer different kinds of plans. She also asked for penalty relief in 2014 as the new rules are implemented, to avoid discouraging employers from participating and from offering affordable coverage.

Michelle Neblett of the National Restaurant Association supported the EFHC’s testimony. She also asked for flexibility in applying the minimum value standard. She said that insurance reforms will impact costs and are linked to the affordability of a plan. She asked that employers not be tied to a rigid benefits package in offering coverage.

In contrast, Ms. Palanker said that the rules should provide a strong definition of the minimum value standard and should ensure that the plan provides essential benefits across the board. She said it was okay for employers to have flexibility and even offer “below-minimum” value, as long as employees have options to enroll in an exchange.