White House Proposes Individual Mandate Rules

Cheryl Clark, for HealthLeaders Media , January 31, 2013

The Obama administration's proposed rules governing the individual mandate include such extensive exemptions that only 2% of the population would owe a penalty, or "shared responsibility payment" for not having coverage under a health plan.

The proposed rules, issued Wednesday, came in the form of two documents, one from the Internal Revenue Service and the other from the Health and Human Services Agency. They detail the controversial individual mandate portion of the Patient Protection and Affordable Care Act, which requires that Americans carry health insurance coverage by 2014. 

As spelled out in the PPACA, "applicable individuals" must pay a penalty if they don't have employer-sponsored health coverage, don't have their own health plan, and are otherwise not exempted, starting next year.

Under the proposed rules, however, large portions of the population would be exempt from paying the penalty, which would be relinquished through  annual tax filings.

Those who would be exempt include taxpayers with incomes below the filing threshold, those who can not afford coverage, members of Indian tribes, people who qualify for hardship exemptions, individuals who have short coverage gaps, those who don't want to purchase health insurance for religious reasons, members of "health sharing ministries," and individuals who are incarcerated.

Also, the penalty would not apply to any taxpayer "for whom coverage is unaffordable, who has other good cause for going without coverage, or who goes without coverage for only a short time," the administration said in a fact sheet.

The HHS rule proposes that health insurance exchanges "tailor an exemption for hardship to particular circumstances that impact an individual, but cannot adequately be predicted in advance. We expect that these circumstances will include, but not be limited to, situations in which an applicant is homeless, receives a shut-off notice from a utility company, faces a natural disaster, or experiences other unexpected natural or human-caused event causing significant damage to the applicant or his or her home."

In the IRS proposed rule, dollar amounts of penalties are spelled out as $95 for 2014, $325 for 2015, and $695 for 2016. They would be increased in the calendar year of 2016 by an amount related to a cost of living adjustment.

Additionally, the administration proposes that individuals who would be eligible for Medicaid, but reside in states that have refused to expand their Medicaid programs, would also receive a hardship exemption.

The rules specify that required "minimum essential coverage" includes employer-sponsored coverage including COBRA and retiree coverage, plans purchased in the individual market, Medicare Part A, Medicaid coverage, Children's Health Insurance Program coverage, certain kinds of Veterans health coverage and TRICARE.

A liberal interpretation of what constitutes a period of time in which a person goes without coverage is offered. For example, the proposal says that if an individual had coverage for one day in a month, he or she is considered to have been covered the entire month. And if the individual is exempt from having to get coverage for any one day of any month that exemption applies to the entire month.

Individuals who go without coverage for less than three months in any year are exempted from having to pay the penalty.

The rules also spell out several categories of coverage that would not be considered minimum essential coverage.

They include accidental death and dismemberment coverage, disability insurance, general liability insurance, automobile liability insurance, workers' compensation, credit-only insurance such as mortgage insurance, and coverage for employer-provided on-site medical clinics. 

Also not considered acceptable coverage are limited-scope dental or vision benefits, long-term care benefits, and benefits provided under certain health flexible spending arrangements.

A third category not considered minimum essential coverage are policies covering "only for a specified disease or illness (for example, cancer-only policies) or fixed indemnity insurance (for example, a policy that pays a fixed dollar amount, such as $100, per day of hospitalization or illness regardless of the amount of medical expense incurred.)"

The fourth category of coverage not considered minimum essential coverage would be policies separate from primary health coverage, Medicare supplemental policies (Medigap or MedSupp insurance), TRICARE supplemental policies, and similar supplemental coverage under a group health plan.

A public hearing is scheduled for May 29. Comments on the HHS proposed rule are due by March 18 and for IRS proposed rule May 2.

The American Hospital Association said it would not have a comment until it had finished reviewing the rules.

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