Affordable Care Act Update - Individual Insurance Issues

Today Treasury (IRS) released final Regulations related to the ACA and minimal essential health insurance coverage for individuals. (The full 75 pages are available here for those wishing to read more.) Key items:

• Individual coverage is measured month-by-month. This relates to whether individuals will have to pay tax penalties for failing to have coverage. Against recommendations, the IRS determined that a month's coverage is determined by the single-day rule. That is, if an individual is covered for any day in the month then they have coverage for the month. (The recommendation was to use a majority of days. But the IRS decided that the math is too difficult, in spite of the requirement that the insurance company will make the determination and send an information return to the individual. Go figure!)
• A taxpayer is responsible for insurance coverage for every person who qualifies to be a dependent, not for those who are actually claimed as a dependent. This includes "qualifying relative" who could be a parent or a roommate.
• There is no ability to shift the responsibility for insurance coverage to a non-custodial parent even if the divorce documents require that parent to provide the insurance.
• When adopting a child, the taxpayer is not responsible for coverage for the month of adoption or any month prior to that month. Conversely when giving up a child for adoption, a taxpayer is not responsible for coverage for the month the child was actually adopted or any month thereafter.
• Household income (used to calculate the tax penalty for non-compliance) includes the income for all those of the household required to pay taxes. 
• Household income must be increased by the amount required to be paid by the taxpayer as the employee portion of the insurance premium for employer-sponsored insurance. (This amount is generally a salary reduction through a "cafeteria" plan and the employee's gross income, as reported on the W-2, is reduced by this amount. Thus it is simply added back on.) Note: This information is not generally reported to an employee but is available from the pay-stubs. Thus the taxpayer will need to maintain these records effective January 1, 2014.
• Pregnancy-related Medicaid is not considered essential medical insurance, and therefore will not enable a taxpayer to escape the non-compliance penalty. (However, the IRS intends to issue guidance to exclude this penalty for 2014 only for those who have pregnancy-related Medicaid. The reasoning is insufficient time to learn that this coverage is insufficient.)
• A self-insured group health plan is an eligible employer-sponsored plan.
• Retiree coverage under a group health plan is minimum essential coverage. However, an individual who is eligible for retiree coverage but does not enroll disregards that eligibility in determining qualification for the lack of affordable coverage exemption. 
• Employer plans include those offered by a third party on behalf of the employer.
• Individuals who are members of a recognized religious sect or division of the sect who are adherents of the established tenets or teachings of the sect or division are eligible to receive a religious conscience exemption certification from an Exchange.
• An individual is exempt for a month for which the individual is incarcerated (other than incarceration pending the disposition of charges).

Obviously the above is far short of 75 pages, which included both commentary and the new Regulations. Not commented on here are many references to taxpayers applying for hardship exemptions. Those are covered by the Department of Health and Human Services (HHS) rather than the Department of Treasury.

The calculations for the tax penalties for non-compliance are, as you might guess, rather complex. I'll save that discussion for another day.