The Individual Mandate Loses Another Tooth

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Christine Speidel brings us up to the minute on the individual mandate.  Keith

The Affordable Care Act has been limping along despite persistent efforts to roll back the law and loosen its interpretation and administration. Even the individual mandate remains in force for 2014 through 2018, to the chagrin of those who assumed that it would be repealed immediately or not enforced in the wake of 2017’s executive order. Nevertheless, the individual mandate is on its way out, and recent developments weaken its bite for the tax years to which it applies.  

The individual shared responsibility provision (ISRP) of the Code (section 5000A) requires most people to have health insurance, claim an exemption, or make an individual shared responsibility payment. In its preliminary review of the 2018 filing season, TIGTA reports that as of March 1 about 1.5 million tax returns reported ISRP totaling $993.9 million for 2017. Also, for the 2018 tax season the IRS implemented a filter to reject as incomplete returns which failed to report any of those three things. TIGTA reports that as of February 28, 2018 just over 104,000 “silent returns” had been rejected from e-filing.  

Taxpayers will have to report on their insurance status for at least one more tax season. In the December 2017 tax act, Congress reduced the penalty for not having insurance to $0 beginning on January 1, 2019. However, I’ve encountered people who believe the mandate is no longer in effect, including attorneys. I can understand why if they are checking the statute online. The way section 5000A was amended makes it look like the mandate is repealed already, but the effective date in the 2017 tax law says otherwise. The penalty is imposed per month without coverage or an exemption, and the Act § 11081(b) says “the amendments [to section 5000A] shall apply to months beginning after December 31, 2018.” Fortunately TIGTA reads that language the same way I do, so I can refer skeptics to their report.

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Although the ISRP is still in effect, recent administrative guidance opens the door for many more taxpayers to get a hardship exemption. On April 9, 2018, the Center for Consumer Information & Insurance Oversight (CCIIO) issued guidance providing additional expansive examples of circumstances for which hardship exemptions will be granted. The guidance also indicates that applications will be accepted without documentation. The applicant must submit a brief explanation, and “should provide documentation” “when available”.  

Exemptions from the ISRP must ultimately be claimed on a tax return, but hardship exemptions must first be approved by the Marketplace. (The IRS Form 8965 instructions have a helpful chart explaining how to claim the various exemptions.) All states except Connecticut use the federal marketplace for hardship exemptions. 

Hardship is defined in the exchange regulations and includes the catchall, “other circumstances that prevented [a person] from obtaining coverage under a qualified health plan.” 45 CFR § 155.605(d)(1). HHS (through CCIIO) has elaborated on the regulatory definition in guidance, and it posts hardship information and application forms on Healthcare.gov.   

The Marketplace hardship application lists 14 types of hardships, and the applicant must check off which boxes apply to them. The categories include homelessness, foreclosure or eviction, natural disaster, and domestic violence, among others, and the last category is “other”. These “category 14” hardship applications are reviewed on their merits and are well worth trying if your client can write a paragraph about why they should not have to pay a penalty. This has been the case for some time, but recent guidance provides reinforcement of the Marketplace’s current approach.  

The April 9 hardship guidance describes four additional examples of “category 14” hardships, which could apply to a significant number of people. Under the guidance, a hardship exemption may be granted if the applicant has no access to a Marketplace plan, or if there is only one insurance company offering plans in the applicant’s location. The latter is a major development. The Kaiser Family Foundation reported that “In 2018, about 26% of enrollees (living in 52% of counties) have access to just one insurer on the marketplace.”   

The guidance goes on to give two more examples of personal circumstances that will support a hardship exemption: first, people who object to buying a plan that covers abortion and have no other options in the Marketplace; and second, people whose personal circumstances create a hardship in accessing care through their Marketplace plans.  

Practitioners whose clients paid or owe the ISRP for prior years should consider submitting a hardship exemption application and filing a protective claim for refund with the IRS. The exchange regulations allow hardship applications to be submitted “during one of the 3 calendar years after the month or months during which the applicant attests that the hardship occurred.” 45 CFR § 155.610(h)(2). The April 9 guidance indicates that the hardship must have occurred within the current calendar year or the prior two calendar years. (I nearly missed this but caught it in the Health Affairs blog.) So, the federal Marketplace’s position is that one could apply today based on a hardship from January 2016 or later. I am glad to have clarity on the Marketplace’s approach, but I question whether it makes sense. It seems that a 3-year period has been turned into less than 3 years, depending on when one’s hardship occurs. A calendar year is January 1 to December 31. If a hardship occurs in April 2018, isn’t the first calendar year after the month of hardship 2019? Alternately, if you’re using the second dictionary definition of “calendar year” (365 days), shouldn’t the applicant have 36 months after the month of hardship?  

To close out this ISRP update, last but not least I recommend reading the National Taxpayer Advocate’s Tax Day testimony before the House of Representatives. Her testimony touches on many areas of concern including taxpayer confusion about their ISRP obligations, and particular difficulties the Amish and Mennonite communities face in attempting to comply. These difficulties were not helped by the IRS mistakenly treating these taxpayers as “silent return” filers in 2017. The continuing and upcoming changes to the ISRP surely do not help either.

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