Header graphic for print
Focus on Regulation

Affordable Care Act – Exemptions to the Individual Mandate

The Centers for Medicare & Medicaid Services (CMS) and the Internal Revenue Service (IRS) took another step towards implementing the controversial “individual mandate” imposed by the Affordable Care Act (ACA)—which is set to take effect on January 1, 2014—by jointly issuing two proposed rules to implement the exemptions to that mandate on January 30, 2013. The ACA requires all individuals to maintain “minimum essential coverage” effective January 1, 2014—or else pay a “shared responsibility payment” or penalty to the IRS—unless an individual qualifies for one of the nine categories of exemptions that are provided in the statute.

The ACA directs that two of these nine exemptions—the hardship exemption and the religious conscience exemption—are only available through the Exchanges. The CMS proposed rule provides that the Exchanges would make the eligibility determinations and issue certificates of exemption to individuals for these two exemptions. The proposed rule also would grant authority to the Exchanges to perform eligibility determinations and issue certificates of exemption for three additional exemption categories—incarcerated individuals, members of Indian tribes and members of health care sharing ministries. Individuals in these latter three categories would also be able to seek an exemption through the IRS tax filing process. The proposed rule provides that the remaining four categories of exemptions—individuals who are not lawfully present in the U.S., individuals who cannot afford coverage, taxpayers with income below the filing threshold, and individuals who experience short coverage gaps—would only be available through the tax filing process and not through the Exchanges (and accordingly the IRS would perform the eligibility determination for those exemptions).

The CMS proposed rule outlines the process for eligibility determinations and the eligibility standards for the five categories of exemptions that would be available through the Exchanges, including the duration of any eligibility determination.

Of particular interest, in the eligibility standards for the hardship exemption, CMS proposes that an Exchange should grant an individual an exemption for hardship when an individual is determined not to be eligible for Medicaid as a result of the State not implementing the Medicaid eligibility expansion provided for in the ACA.

The CMS proposed rule also designates certain types of health insurance coverage as meeting the “minimum essential coverage” standard—including the coverage types listed in the ACA statute, as well as certain other types of coverage that are not listed in the statute. The proposed rule also lays out a process for plans that are not designated as “minimum essential coverage” under either the ACA statute or the proposed regulation to obtain a designation as “minimum essential coverage.”

The IRS proposed rule outlines the eligibility standards for the four categories of exemptions that are proposed to be available exclusively through the tax-filing process. The IRS proposed rule also provides for the computation, assessment, and collection of the “shared responsibility payment” for individuals who do not have minimum essential coverage for three consecutive months and who do not qualify for an exemption.