IRS Says Taxpayers Are Responsible for Dependents' Healthcare

I am responding to your letter dated May 30, 2013. You asked for our review and analysis of the written and oral comments that your constituent, Ms. Annmarie Davidson, provided on the proposed regulations on the requirement to maintain minimum essential coverage under section 5000A of the Internal Revenue Code. The proposed regulations were published in the Federal Register on February 1, 2013.

In a written comment submitted on March 21, 2013, and in testimony given in the public hearing held on May 29, 2013, Ms. Davidson described a situation in which a noncustodial parent of a child fails to provide health care coverage for the child as required by a court order. Ms. Davidson stated that she, as the child's custodial parent who is allowed to claim the child as a dependent, should not be liable for the shared responsibility payment resulting from the noncustodial parent's failure to comply with a court order. Instead, she requested that the Internal Revenue Service hold the noncustodial parent in this situation liable.

In general, under section 5000A, a taxpayer is responsible for his or her dependents' health care coverage. We understand the difficulties that taxpayers in Ms. Davidson's situation face and appreciate her taking the time to testify at the hearing. We will carefully consider her comments as we consider all comments received on these proposed regulations.

We note that section 5000A does provide an exemption under the authority of the Department of Health and Human Services (HHS) for an individual who is determined to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan. HHS has released guidance providing that, in determining what constitutes a hardship, an Exchange may consider the circumstance in which a child is ineligible for Medicaid and the Children's Health Insurance Program (CHIP) and a party other than the party who expects to claim the child as a tax dependent is required by court order to provide medical support. For your reference, I am enclosing a copy of the HHS guidance.

I hope this information is helpful. If you have any questions, please contact me or John B. Lovelace (Identification Number 50-45118) at (202) 622-4960.

In the final regulation titled, "Patient Protection and Affordable Care Act; Exchange Functions: Eligibility for Exemptions; Miscellaneous Minimum Essential Coverage Provisions", and published on June 26, 2013, ("Exemptions/MEC final rule"), the Department of Health and Human Services (HHS) finalized provisions concerning how Marketplaces (also known as "Exchanges") will determine eligibility for and grant certificates of exemption from the individual shared responsibility payment described in section 5000A of the Internal Revenue Code.

We noted in the Exemptions/MEC final rule that we would provide further guidance regarding criteria that Federally-facilitated Marketplaces will use for the hardship exemption described at 45 CFR 155.605(g)(1). While State-based Marketplaces may use these criteria, they have the flexibility to develop their own as long as the criteria meet the requirements of the final regulation. We also specified that we would address an individual's ability to enroll in a qualified health plan (QHP) during a special enrollment period in situations in which he or she loses eligibility for an exemption within a coverage year. This guidance is intended to describe the circumstances that Marketplaces may use in determining what constitutes a hardship if they prevent an individual from obtaining coverage under a QHP. It also specifies situations for Marketplaces to consider in determining whether an individual experienced exceptional circumstances that provide eligibility for a special enrollment period.

Hardship

In the Exemptions/MEC final rule, HHS specified at 45 CFR 155.605(g)(1) that a Marketplace must grant a hardship exemption to an applicant if the Marketplace determines that:

• becomes homeless;

• has been evicted in the past six months, or is facing eviction or foreclosure;

• has received a shut-off notice from a utility company;

• recently experienced domestic violence;

• recently experienced the death of a close family member;

• recently experienced a fire, flood, or other natural or human-caused disaster that resulted in substantial damage to the individual's property;

• filed for bankruptcy in the last 6 months;

• incurred unreimbursed medical expenses in the last 24 months that resulted in substantial debt;

• experienced unexpected increases in essential expenses due to caring for an ill, disabled, or aging family member;

• is a child who has been determined ineligible for Medicaid and CHIP, and for whom a party other than the party who expects to claim him or her as a tax dependent is required by court order to provide medical support. We note that this exemption should only be provided for the months during which the medical support order is in effect; or

• as a result of an eligibility appeals decision, is determined eligible for enrollment in a QHP through the Marketplace, advance payments of the premium tax credit, or cost-sharing reductions for a period of time during which he or she was not enrolled in a QHP through the Marketplace, noting that this exemption should only be provided for the period of time affected by the appeals decision.

In the proposed regulation titled, "Medicaid, Children's Health Insurance Programs, and Exchanges: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals and Other Provisions Related to Eligibility and Enrollment for Exchanges, Medicaid and CHIP, and Medicaid Premiums and Cost Sharing; Proposed Rule" (78 FR 4647), and published on January 22, 2013, 45 CFR 155.420(d)(9) proposes a special enrollment period when:

• The qualified individual or enrollee, or his or her dependent, demonstrates to the Exchange, in accordance with guidelines issued by HHS, that the individual meets other exceptional circumstances as the Exchange may provide.