More details emerge on insurance tax credits and other reform standards

Proposed federal rules would mandate a one-stop enrollment process for public and private coverage in health insurance exchanges.

By Doug Trapp — Posted Aug. 26, 2011

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The Dept. of Health and Human Services in August released three proposed rules addressing the enrollment of an estimated 30 million Americans in Medicaid and private health insurance through health insurance exchanges beginning in 2014.

The three rules -- co-written by the Depts. of Treasury and Labor -- seek to implement a one-stop process to determine eligibility and enrollment for Medicaid and the Children's Health Insurance Program, and for tax credits to help purchase health insurance.

"We are working with states to build a system where the responses will be immediate," said HHS Secretary Kathleen Sebelius. The enrollment systems will rely on electronic databases, including access to the most recent tax returns available to determine whether applicants will be eligible for government assistance. Applicants will provide a single set of information to determine eligibility for Medicaid, CHIP and the tax credits.

The health system reform law provides for insurance exchanges that will serve as marketplaces for new private health plans and facilitate enrollment in Medicaid and CHIP. The exchanges are to be implemented by 2014, with some states operating their own exchanges and the federal government operating a federal exchange in states that do not implement their own.

The reform law provides tax credits to help purchase private health plans in the exchange. Anyone earning between 100% and 400% of the federal poverty level -- or $22,350 to $89,400 for a family of four-- will be eligible for a tax credit, which will be based on the person's income and the health plan's cost.

About 20 million people each will receive an average tax credit of $5,000 when the law is fully phased in, said Emily McMahon, deputy assistant secretary for tax policy at the Treasury Dept. People who qualify for public health coverage will not be eligible for tax credits.

The credits will be paid directly to health plans and will be available immediately based on income from the previous year. Any overpayments will be accounted for in the person's next tax return, said Internal Revenue Service Commissioner Douglas H. Shulman.

"We didn't make a lot of calls on this. A lot of this is straight implementation," he said.

However, the American Benefits Council, which represents employer-sponsored benefit programs, had been concerned that HHS would judge health insurance affordability based on the cost of family coverage, but the proposed rule bases it on single coverage.

"By simplifying the affordability test, the IRS has spared employers the dual burden of determining nebulous 'household income' and performing affordability tests on different premium structures," said James A. Klein, the council's president.

HHS also announced it is awarding an additional $185 million to 13 states and the District of Columbia to aid implementation of the health insurance exchanges. The states are: California, Connecticut, Illinois, Kentucky, Maryland, Minnesota, Mississippi, Missouri, Nevada, New York, North Carolina, Oregon and West Virginia.

HHS is accepting comments on the rules until Oct. 31 and is holding public forums on implementing the health insurance exchanges in six cities: Atlanta, Chicago, Denver, New York, Portland, Ore., and Sacramento, Calif. More information about the rules is available online (link).

The American Medical Association is reviewing the proposed rules to make sure the health insurance marketplaces will work well for patients and physicians, said AMA President Peter W. Carmel, MD. "These exchanges have the potential to help many Americans obtain affordable health insurance coverage, and we will submit comments to HHS as they work to develop the guidelines that will govern this important process."

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