Under the Affordable Care Act (ACA) health care reform law, depending on income, premium tax credits and other cost-sharing reductions may be provided on an advance basis throughout the year to taxpayers who don’t have access to affordable group coverage and who buy individual policies through a state-based health insurance exchange. A critical function of the individual exchanges is to verify that taxpayers are eligible for these advance subsidies.
• HUGE QUESTIONS: What’s to stop an employee who has access to affordable group coverage from gaming the system and getting those subsidies anyway? And how will you know? Two sets of regulations—which, together, impose a regimen of verification, reconciliation and information reporting—begin to answer these questions.
Verification and reconciliation
These final regs apply in the 16 states and the District of Columbia that are setting up their own exchanges.
Under the regs, applicants can attest that they’re eligible for advance tax credits on the exchange application. All exchanges must verify applicants’ attestations, including whether they reasonably expect to be enrolled in group coverage, by searching government data bases and at least one commercial data base. Additional verifications will be performed during the year if applicants’ income changes.
If applicants’ attestations regarding access to group coverage aren’t reasonably compatible with the information the exchanges obtain (a likely case, since group coverage information usually isn’t available electronically), the exchanges must select a statistically significant random sample of applicants and contact their employers for further information.
Key: Exchanges will accept employees’ attestations if you don’t respond within 90 days.
Break for 2014: The 17 state exchanges may, but aren’t required to, relax the verification of group health coverage. These exchanges, therefore, may rely solely on applicants’ attestations.
Contrast: The federally facilitated exchanges, including state-partnership exchanges, won’t be relying on applicants’ attestations next year. Instead, they will apply the full verification procedure.
• NOT A LIAR’S PARADISE: Of course, some employees won’t be included in a random sample, which means they will receive advance tax credits without your knowledge. But this is only a brief respite from taxation, since they must reconcile those tax credits on their 1040s. Those who end up not qualifying for tax credits because, for example, they were eligible for affordable group coverage, will owe additional income taxes with that year’s 1040. (78 F.R. 42159, 7-15-13)
The second linchpin for exchanges—and taxpayers who must reconcile their advance credits—is information reporting to the IRS and taxpayers. Under proposed regs, exchanges must report the monthly amounts of advance credits taxpayers receive; the names, addresses and Employer Identification Numbers of taxpayers’ employers, spouses’ employers and dependents’ employers; an indication of whether these employers offer affordable group coverage that provides minimum value; and if so, the employee’s contribution for self-only coverage for the cheapest plan.
Reports are due to the IRS monthly, by the 15th day of the following month, and annually by Jan. 31 of the following year. Reports must be filed electronically; monthly reports will contain cumulative information for each preceding month. Reports are due to taxpayers by Jan. 31 of the following year. Reports may be made on Form 1095-A and may be provided to taxpayers electronically, if they consent. (78 F.R. 39644, 7-1-13)
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