Guest Article

(From the August 29, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

State Insurance Exchanges Will Make Key Determinations on Eligibility

Proposed regulations recently released by the Department of Health and Human Services describe the formidable duties the new state Exchanges will perform in executing two of their key functions: determining whether individuals are eligible to obtain health coverage through the Exchange, and whether those individuals qualify for any of the insurance affordability programs (e.g., premium tax credits, reduced cost-sharing).

Eligibility to Purchase Through the Exchange

The Exchanges will determine if an individual is a citizen, national, or non-citizen lawfully present and reasonably expected to remain so for the period for which enrollment is sought, so as to be eligible to purchase coverage through the Exchange. The Exchanges will be able to accommodate individuals who transition between service areas (e.g., seasonal workers) and will allow a request for a coverage period of less than a full calendar year. They will also accommodate tax households that include members in different services areas served by different Exchanges (e.g., out-of-state students). Each Exchange is required to have at least two private multi-state plans to accommodate such households.

Verification of eligibility to purchase through the Exchange will be conducted by the Exchange through electronic data sources with the Social Security Administration (SSA), Department of Homeland Security, and the Internal Revenue Service.

Eligibility for Affordability Programs

At the time an Exchange determines whether an individual is eligible to purchase coverage, a determination is also made (unless the individual opts out) regarding the individual's eligibility for affordability programs (i.e., Medicaid, CHIP, premium tax credits, reduced cost sharing). To verify household income for this purpose, the Exchanges will submit the social security number of all individuals whose income is counted in calculating the primary taxpayer's household income to the Department of Health and Human Services (DHHS), which in turn will request tax information from the Treasury Department. Treasury-required safeguards for tax information will be satisfied across the Exchange information technology architecture. State quarterly wage information will also be requested to verify current income. Other sources of income verification include the SSA and State unemployment compensation agencies.

An individual who is not the primary taxpayer in the household may apply for coverage through the Exchange, but the primary taxpayer's involvement is necessary before the Exchange can authorize advance payment of a premium tax credit. The tax credit is available to individuals whose household income exceeds 100 percent but not 400 percent of the Federal Poverty Level (FPL). The primary taxpayer must certify that he or she will file a Federal income tax return for that year (and claim a personal exemption for the other applicants identified as a member of the tax family) to reconcile the advance payments with the actual premium tax credit calculated at the end of the year. To avoid the possibility of overpayment (and the taxpayer owing the excess as taxes due on the Federal income tax return) the primary taxpayer can accept less than the full amount of the advance payment calculated by the Exchange.

Separate from the premium tax credit, the affordability programs include reduced cost sharing for individuals whose household income exceeds 100 percent but not 400 percent of the FPL, and who enroll in the silver-level qualified health plan. However, the regulations clarify that, because of other restrictions that apply, individuals whose household income exceeds 250 percent of the FPL will not be eligible for the cost sharing (unless the individual is an Indian, as defined in section 4(d) of the Indian Self-Determination and Education Assistance Act: an individual who is a member of a Federally recognized tribe).

Employer-Sponsored "Minimum Essential Coverage"

A determination of eligibility for the affordability programs requires information on whether the individual is eligible for "minimum essential coverage." The Exchanges will need to verify both within and outside the State whether the individual has already been determined eligible for Medicaid, CHIP or a Basic Health Program. (If so, the individual is not eligible for advance payment of the premium tax credit.) In terms of minimum essential coverage, which is employer-sponsored coverage, the regulations propose for the Exchanges to rely on the attestation of the individual as to whether he or she is enrolled in employer-sponsored coverage. The Exchanges will have to interact with employers in order to determine eligibility for advance payment of the premium tax credit and cost-sharing reductions. Some of the required information will already be disclosed by the employers or plan insurers (e.g., whether the employer-sponsored coverage is minimum essential coverage) such as in the Summary of Benefits and Coverage (SBC). The employer is also required to report to the IRS under Code § 6056 certain plan level and employee-level information on the health coverage it provides to employees. The DHHS, Labor and Treasury Departments are working together to coordinate how the necessary information could be reported in order to make it easier for employees to access it and to minimize the burden on employers. Two proposals are discussed in the regulations: a template designed to capture plan-level information needed for the Exchange application process, and a central database that employers could voluntarily populate as a potential resource.

Employer Issues

SHOP

The proposed regulations also round out some of the details of the Small Business Health Options Program (SHOP) of the Exchanges by which employers with up to 100 employees can offer a qualified health plan under the Exchange to its employees. The proposed regulations clarify that an employer can continue to participate in SHOP if it ceases to be a small employer solely because of an increase in the number of employees. Small employers with employees in multiple states or service areas will be provided multi-state flexibility in offering coverage to their employees. Employers who participate in SHOP will be required to disseminate information to their employees about the methods for selecting and enrolling in a qualified health plan (e.g., the timeframes for enrollment, instructions on how to access the SHOP website and tools to compare plans, and the SHOP toll-free hotline). SHOP may assist the employers in this process—for example, by providing a toolkit. The employers will also be required to submit premium payments according to the specified process, and to notify SHOP if employee eligibility has changed (such as a COBRA-qualifying event). Although an employer may begin participating in SHOP at any time, it may change employee offerings only during the annual employer election period.

Minimum Essential Coverage

As noted above, employers are required to report plan- and employee-level information on their employer-sponsored health coverage to the IRS, and employers (or insurers in the case of insured group health plans) are required to provide SBCs to employees. Some of this information will be relevant to the Exchanges in making a determination of an employee's eligibility for insurance affordability programs. The enforcement agencies are looking for a methodology by which the necessary information can be provided to the Exchange without further burden on the employers (e.g., a form of template or a central data base for employers to use). If an Exchange determines that an individual is eligible for advance payments of the premium tax credit because the employer does not provide minimum essential coverage (or provides minimum essential coverage that is unaffordable or does not meet the minimum value requirements) the Exchanges will provide that information to the Treasury Department. Information about the determination will also be provided to the employer. The employer will potentially be subject to penalties in that case.

Comments on the proposed regulation are requested no later than October 31, 2011. A Fact Sheet, Affordable Insurance Exchanges: Simple, Seamless and Affordable Coverage—Exchange Eligibility and Employer Standards and the Affordable Care Act, was also released and can be found on the Healthcare.gov website.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.