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COVID-19 Coverage Eligibility Doesn’t Block Premium Tax Credit

Posted on Sep. 10, 2020

Medicaid coverage limited to COVID-19 testing and diagnostics isn’t considered “minimum essential coverage” under a government-sponsored program in terms of qualifying for the premium tax credit, according to the IRS.

“An individual’s eligibility for this coverage for one or more months does not prevent those months from qualifying as coverage months for purposes of determining eligibility for the premium tax credit under section 36B,” the IRS said in Notice 2020-66, 2020-40 IRB 1, released September 9.

In the interim guidance, the IRS also announced that it would amend section 5000A regulations to reflect that COVID-19 testing and diagnostic services provided by Medicaid aren't considered minimum essential coverage by a government-sponsored program. The Families First Coronavirus Response Act (P.L. 116-127) authorized the services under Medicaid. 

Christine Speidel of Villanova University’s Charles Widger School of Law told Tax Notes that the guidance “allows private and public employers and health plans to provide free COVID testing without worrying that they are thereby disqualifying their employees or beneficiaries from affordable, comprehensive health insurance.”

Speidel added that more than 11 million people signed up for 2020 health insurance through the government-run health insurance marketplace, in which private plans are subsidized by premium tax credits on a sliding scale.

Since the pandemic, she said, the marketplace has seen increased enrollment as people have been laid off and lost insurance sponsored by employers.

“People are not eligible for subsidized marketplace insurance if they have access to ‘minimum essential coverage’ through an employer or through a government program like Medicaid,” she said. “So it was very important for the IRS to clarify that providing COVID testing would not count as minimum essential coverage.”

Speidel added that as a health policy matter, “we do not want to see people kicked off their affordable health insurance just because they qualified for a free COVID test. . . . It would have been astonishing had [the IRS] come out the other way.”

The section 36B premium tax credit is available for taxpayers who purchase qualified health coverage through a health insurance exchange established under the Affordable Care Act. A taxpayer is allowed a premium tax credit only for months that are considered coverage months for members of the taxpayer’s family, and the definition of a coverage month includes only those months the individual isn’t eligible for minimum essential coverage except coverage in the individual market, according to the notice.

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