[Federal Register Volume 78, Number 86 (Friday, May 3, 2013)]
[Proposed Rules]
[Pages 25909-25916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10463]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-125398-12]
RIN 1545-BL43


Minimum Value of Eligible Employer-Sponsored Plans and Other 
Rules Regarding the Health Insurance Premium Tax Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
health insurance premium tax credit enacted by the Patient Protection 
and Affordable Care Act and the Health Care and Education 
Reconciliation Act of 2010, as amended by the Medicare and Medicaid 
Extenders Act of 2010, the Comprehensive 1099 Taxpayer Protection and 
Repayment of Exchange Subsidy Overpayments Act of 2011, and the 
Department of Defense and Full-Year Continuing Appropriations Act, 
2011. These proposed regulations affect individuals who enroll in 
qualified health plans through Affordable Insurance Exchanges 
(Exchanges) and claim the premium tax credit, and Exchanges that make 
qualified health plans available to individuals and employers. These 
proposed regulations also provide guidance on determining whether 
health coverage under an eligible employer-sponsored plan provides 
minimum value and affect employers that offer health coverage and their 
employees.

DATES: Written (including electronic) comments and requests for a 
public hearing must be received by July 2, 2013.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-125398-12), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
125398-12), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-125398-12).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Andrew S. Braden, (202) 622-4960; concerning the submission of comments 
and/or requests for a public hearing, Oluwafunmilayo Taylor, (202) 622-
7180 (not toll-free calls).

SUPPLEMENTARY INFORMATION: 

Background

    Beginning in 2014, under the Patient Protection and Affordable Care 
Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 
1029 (2010)) (collectively, the Affordable Care Act), eligible 
individuals who purchase coverage under a qualified health plan through 
an Affordable Insurance Exchange may receive a premium tax credit under 
section 36B of the Internal Revenue Code (Code). Section 36B was 
subsequently amended by the Medicare and Medicaid Extenders Act of 
2010, Public Law 111-309 (124 Stat. 3285 (2010)); the Comprehensive 
1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments 
Act of 2011, Public Law 112-9 (125 Stat. 36 (2011)); and the Department 
of Defense and Full-Year Continuing Appropriations Act, 2011, Public 
Law 112-10 (125 Stat. 38 (2011)).
    Notice 2012-31 (2012-20 IRB 910) requested comments on methods for 
determining whether health coverage under an eligible employer-
sponsored plan provides minimum value (MV). Final regulations under 
section 36B (TD 9590) were published on May 23, 2012 (77 FR 30377). The 
final regulations requested comments on issues to be addressed in 
further guidance. The comments have been considered in developing these 
proposed regulations.

Minimum Value

    Individuals generally may not receive a premium tax credit if they 
are eligible for affordable coverage under an eligible employer-
sponsored plan that provides MV. An applicable large employer (as 
defined in section 4980H(c)(2)) may be liable for an assessable payment 
under section 4980H if a full-time employee receives a premium tax 
credit.
    Under section 36B(c)(2)(C)(ii), a plan fails to provide MV if the 
plan's share of the total allowed costs of benefits provided under the 
plan is less than 60 percent of the costs. Section 1302(d)(2)(C) of the 
Affordable Care Act provides that, in determining the percentage of the 
total allowed costs of benefits provided under a group health plan, the 
regulations promulgated by the Secretary of Health and Human Services 
(HHS) under section 1302(d)(2) apply.
    HHS published final regulations under section 1302(d)(2) on 
February 25, 2013 (78 FR 12834). The HHS regulations at 45 CFR 156.20 
define the percentage of the total allowed costs of

[[Page 25910]]

benefits provided under a group health plan as (1) The anticipated 
covered medical spending for essential health benefits (EHB) coverage 
(as defined in 45 CFR 156.110(a)) paid by a health plan for a standard 
population, (2) computed in accordance with the plan's cost-sharing, 
and (3) divided by the total anticipated allowed charges for EHB 
coverage provided to a standard population. In addition, 45 CFR 
156.145(c) provides that the standard population used to compute this 
percentage for MV (as developed by HHS for this purpose) reflects the 
population covered by typical self-insured group health plans.
    The HHS regulations describe several options for determining MV. 
Under 45 CFR 156.145(a)(1), plans may use the MV Calculator (available 
at http://cciio.cms.gov/resources/regulations/index.html). 
Alternatively, 45 CFR 156.145(a)(2) provides that a plan may determine 
MV through a safe harbor established by HHS and IRS. For plans with 
nonstandard features that are incompatible with the MV Calculator or a 
safe harbor, 45 CFR 156.145(a)(3) provides that the plan may determine 
MV through an actuarial certification from a member of the American 
Academy of Actuaries after performing an analysis in accordance with 
generally accepted actuarial principles and methodologies. Finally, 45 
CFR 156.145(a)(4) provides that a plan in the small group market 
satisfies MV if it meets the requirements for any of the levels of 
metal coverage defined at 45 CFR 156.140(b) (bronze, silver, gold, or 
platinum).

Miscellaneous Provisions Under Section 36B

    To be eligible for a premium tax credit, an individual must be an 
applicable taxpayer. Under section 36B(c)(1), an applicable taxpayer is 
a taxpayer whose household income for the taxable year is between 100 
percent and 400 percent of the federal poverty line (FPL) for the 
taxpayer's family size.
    Section 36B(b)(1) provides that the premium assistance credit 
amount is the sum of the premium assistance amounts for all coverage 
months in the taxable year for individuals in the taxpayer's family. 
The premium assistance amount for a coverage month is the lesser of (1) 
the premiums for the month for one or more qualified health plans that 
cover a taxpayer or family member, or (2) the excess of the adjusted 
monthly premium for the second lowest cost silver plan (as described in 
section 1302(d)(1)(B) of the Affordable Care Act (42 U.S.C. 
18022(d)(1)(B)) (the benchmark plan) that applies to the taxpayer over 
1/12 of the product of the taxpayer's household income and the 
applicable percentage for the taxable year. The adjusted monthly 
premium, in general, is the premium an insurer would charge for the 
plan adjusted only for the ages of the covered individuals.
    Under section 36B(c)(2)(A), a coverage month is any month for which 
the taxpayer or a family member is covered by a qualified health plan 
enrolled in through an Exchange and the premium is paid by the taxpayer 
or through an advance credit payment. Section 36B(c)(2) provides that a 
month is not a coverage month for an individual who is eligible for 
other minimum essential coverage. If the other coverage is eligible 
employer-sponsored coverage, however, it is treated as minimum 
essential coverage only if it is affordable and provides MV. Eligible 
employer-sponsored coverage is affordable for an employee and related 
individuals if the portion of the annual premium the employee must pay 
for self-only coverage does not exceed the required contribution 
percentage (9.5 percent for taxable years beginning before January 1, 
2015) of the taxpayer's household income. The MV requirement is 
discussed in the Explanation of Provisions.
    Any arrangement under which employees are required, as a condition 
of employment or otherwise, to be enrolled in an employer-sponsored 
plan that does not provide minimum value or is unaffordable, and that 
does not give the employees an effective opportunity to terminate or 
decline the coverage, raises a variety of issues. Proposed regulations 
under section 4980H indicate that if an employer maintains such an 
arrangement it would not be treated as having made an offer of 
coverage. As a result, an applicable large employer could be subject to 
an assessable payment under that section. See Proposed Sec.  54.4980H-
4(b), 78 FR 250 (January 2, 2013). Such an arrangement would also raise 
additional concerns. For example, it is questionable whether the law 
permits interference with an individual's ability to apply for a 
section 36B premium tax credit by seeking to involuntarily impose 
coverage that does not provide minimum value. (See, for example, the 
Fair Labor Standards Act, as amended by section 1558 of the Affordable 
Care Act, 29 U.S.C. 218c(a).) If an employer sought to involuntarily 
impose on its employees coverage that did not provide minimum value or 
was unaffordable, the IRS and Treasury, as well as other relevant 
departments, may treat such arrangements as impermissible interference 
with an employee's ability to access premium tax credits, as 
contemplated by the Affordable Care Act.

Explanation of Provisions and Summary of Comments

1. Minimum Value

a. In General
    The proposed regulations refer to the proportion of the total 
allowed costs of benefits provided to an employee that are paid by the 
plan as the plan's MV percentage. The MV percentage is determined by 
dividing the cost of certain benefits (described in paragraph b.) the 
plan would pay for a standard population by the total cost of certain 
benefits for the standard population, including amounts the plan pays 
and amounts the employee pays through cost-sharing, and then converting 
the result to a percentage.
b. Health Benefits Measured in Determining MV
    Commentators sought clarification of the health benefits considered 
in determining the share of benefit costs paid by a plan. Some 
commentators maintained that MV should be based on the plan's share of 
the cost of coverage for all EHBs, including those a plan does not 
offer. Other commentators suggested that the MV percentage should be 
based on the plan's share of the costs of only those categories of EHBs 
the plan covers.
    The proposed regulations do not require employer-sponsored self-
insured and insured large group plans to cover every EHB category or 
conform their plans to an EHB benchmark that applies to qualified 
health plans. The preamble to the HHS regulations (see 78 FR 12833) 
notes that employer-sponsored group health plans are not required to 
offer EHBs unless they are health plans offered in the small group 
market subject to section 2707(a) of the Public Health Service Act. The 
preamble also states that, under section 1302(d)(2) of the Affordable 
Care Act, MV is measured based on the provision of EHBs to a standard 
population and plans may account for any benefits covered by the 
employer that also are covered in any one of the EHB-benchmark plans. 
See 45 CFR 156.145(b)(2).
    Consistent with 45 CFR 156.145(a)-(c) and the assumptions described 
in Notice 2012-31, these proposed regulations provide that MV is based 
on the anticipated spending for a standard population. The plan's 
anticipated spending for benefits provided under any particular EHB-
benchmark plan for any State counts towards MV.

[[Page 25911]]

c. Health reimbursement arrangements, health savings accounts, and 
wellness program incentives
i. Arrangements That Reduce Cost-Sharing
    Some commentators suggested that current year health savings 
account (HSA) contributions and amounts newly made available under a 
health reimbursement arrangement (HRA) should be fully counted toward 
the plan's share of costs included in calculating MV. Some commentators 
suggested that only HRA contributions that may be used to pay for cost 
sharing and not HRAs restricted to other uses should be counted in the 
MV calculation.
    Consistent with 45 CFR 156.135(c), the proposed regulations provide 
that all amounts contributed by an employer for the current plan year 
to an HSA are taken into account in determining the plan's share of 
costs for purposes of MV and are treated as amounts available for first 
dollar coverage. Amounts newly made available under an HRA that is 
integrated with an eligible employer-sponsored plan for the current 
plan year count for purposes of MV in the same manner if the amounts 
may be used only for cost-sharing and may not be used to pay insurance 
premiums. It is anticipated that regulations will provide that whether 
an HRA is integrated with an eligible employer-sponsored plan is 
determined under rules that apply for purposes of section 2711 of the 
Public Health Service Act (42 U.S.C. 300gg-11). Commentators offered 
differing opinions about how nondiscriminatory wellness program 
incentives that may affect an employee's cost sharing should be taken 
into account for purposes of the MV calculation. Some commentators 
noted that the rules governing wellness incentives require that they be 
available to all similarly situated individuals. These commentators 
suggested that because eligible individuals have the opportunity to 
reduce their cost-sharing if they choose, a plan's share of costs 
should be based on the costs paid by individuals who satisfy the terms 
of the wellness program. Other commentators expressed concern that, 
despite the safeguards of the regulations governing wellness 
incentives, certain individuals inevitably will face barriers to 
participation and fail to qualify for rewards. These commentators 
suggested that a plan's share of costs should be determined without 
assuming that individuals would qualify for the reduced cost-sharing 
available under a wellness program.
    The proposed regulations provide that a plan's share of costs for 
MV purposes is determined without regard to reduced cost-sharing 
available under a nondiscriminatory wellness program. However, for 
nondiscriminatory wellness programs designed to prevent or reduce 
tobacco use, MV may be calculated assuming that every eligible 
individual satisfies the terms of the program relating to prevention or 
reduction of tobacco use. This exception is consistent with other 
Affordable Care Act provisions (such as the ability to charge higher 
premiums based on tobacco use) reflecting a policy about individual 
responsibility regarding tobacco use.
ii. Arrangements That Reduce Premiums
    Section 36B(c)(2)(C)(i)(II) and the final regulations provide that 
eligible employer-sponsored coverage is affordable only if an 
employee's required contribution for self-only coverage does not exceed 
9.5 percent of household income. The preamble to the final regulations 
indicated that rules for determining how HRAs and wellness program 
incentives are counted in determining the affordability of eligible 
employer-sponsored coverage would be provided in later guidance.
    Some commentators asserted that an employer's entire annual 
contribution to an HRA plus prior year contributions should be taken 
into account in determining affordability. The proposed regulations 
provide that amounts newly made available under an HRA that is 
integrated with an eligible employer-sponsored plan for the current 
plan year are taken into account only in determining affordability if 
the employee may use the amounts only for premiums or may choose to use 
the amounts for either premiums or cost-sharing. Treating amounts that 
may be used either for premiums or cost-sharing only towards 
affordability prevents double counting the HRA amounts when assessing 
MV and affordability of eligible employer-sponsored coverage.
    It is anticipated that regulations under section 5000A will provide 
that amounts newly made available under an HRA that is integrated with 
an eligible employer-sponsored plan for the current plan year are also 
taken into account for purposes of the affordability exemption under 
section 5000A(e)(1) if the employee may use the amounts only for 
premiums or for either premiums or cost-sharing.
    The final regulations requested specific comments on the nature of 
wellness incentives and how they should be treated for determining 
affordability. Commentators expressed similar views about the treatment 
of wellness incentives that affect the cost of premiums as about the 
treatment of wellness incentives that affect cost-sharing.
    Like the rule for determining MV, the proposed regulations provide 
that the affordability of an employer-sponsored plan is determined by 
assuming that each employee fails to satisfy the requirements of a 
wellness program, except the requirements of a nondiscriminatory 
wellness program related to tobacco use. Thus, the affordability of a 
plan that charges a higher initial premium for tobacco users will be 
determined based on the premium that is charged to non-tobacco users, 
or tobacco users who complete the related wellness program, such as 
attending smoking cessation classes.
    In many circumstances these rules relating to the effect of 
premium-related wellness program rewards on affordability will have no 
practical consequences. They matter only when the employer sets the 
level of the employee's required contribution to self-only premium, and 
establishes a wellness program that provides for a level of premium 
discount, in such a manner that the employee's required contribution to 
premium would exceed 9.5 percent of household income (or wages, under 
an affordability safe harbor under the section 4980H proposed 
regulations) but for the potential premium discount under the wellness 
program. If, for example, the employee's household income was at least 
$25,000, and the employee's required contribution for self-only 
coverage did not exceed $2,375 (9.5 percent of $25,000), the coverage 
would be affordable whether or not a wellness premium discount was 
taken into account to reduce the $2,375 required contribution.
    It is anticipated that regulations under section 5000A will provide 
that nondiscriminatory wellness programs that affect premiums will be 
treated for purposes of the affordability exemption under section 
5000A(e)(1) in the same manner as they are treated for purposes of 
determining affordability under section 36B.
    Solely for purposes of applying section 4980H and solely for plan 
years of an employer's group health plan beginning before January 1, 
2015, with respect to an employee described in the next sentence, an 
employer will not be subject to an assessable payment under section 
4980H(b) with respect to an employee who received a premium tax credit 
because the offer of coverage was not affordable or did not satisfy MV, 
if the offer of coverage to the employee under the employer's group 
health plan would have been affordable or would

[[Page 25912]]

have satisfied MV based on the total required employee premium and 
cost-sharing for that group health plan that would have applied to the 
employee if the employee satisfied the requirements of any wellness 
program described in the next sentence, including a wellness program 
with requirements unrelated to tobacco use. The rule in the preceding 
sentence applies only (1) To the extent of the reward as of May 3, 
2013, expressed as either a dollar amount or a fraction of the total 
required employee contribution to the premium (or the employee cost-
sharing, as applicable), (2) under the terms of a wellness program as 
in effect on May 3, 2013, and (3) with respect to an employee who is in 
a category of employees eligible under the terms of the wellness 
program as in effect on May 3, 2013 (regardless of whether the employee 
was hired before or after that date). Any required employee 
contribution to premium determined based upon assumed satisfaction of 
the requirements of a wellness program available under this transition 
relief may be applied to the use of an affordability safe harbor 
provided in the proposed regulations under section 4980H.
d. Standard Population and Utilization
    Consistent with 45 CFR 156.145(c), the proposed regulations provide 
that the standard population used to determine MV reflects the 
population covered by self-insured group health plans. HHS has 
developed the MV standard population and described it through summary 
statistics (for example, continuance tables). MV continuance tables and 
an explanation of the MV Calculator methodology and the health claims 
data HHS has used to develop the continuance tables are available at 
http://cciio.cms.gov/resources/regulations/index.html.
e. Methods for Determining Minimum Value
    Notice 2012-31 and 45 CFR 156.145(a) describe several methods for 
determining MV: the MV Calculator, a safe harbor, actuarial 
certification, and, for small group market plans, a metal level. Some 
commentators requested that plans be allowed to choose one of the four 
methods in determining MV. Other commentators favored requiring 
employers to use the most precise method for plans that may be close to 
the 60 percent threshold.
    The proposed regulations provide that taxpayers may determine 
whether a plan provides MV by using the MV Calculator made available by 
HHS and the IRS. Taxpayers must use the MV Calculator to measure 
standard plan features (unless a safe harbor applies), but the 
percentage may be adjusted based on an actuarial analysis of plan 
features that are outside the parameters of the calculator.
    Certain safe harbor plan designs that satisfy MV will be specified 
in additional guidance under section 36B or 4980H, see Sec.  
601.601(d). It is anticipated that the guidance will provide that the 
safe harbors are examples of plan designs that clearly would satisfy 
the 60 percent threshold if measured using the MV Calculator. The safe 
harbors are intended to provide an easy way for sponsors of typical 
employer-sponsored group health plans to determine whether a plan meets 
the MV threshold without having to use the MV Calculator.
    Plan designs meeting the following specifications are proposed as 
safe harbors for determining MV if the plans cover all of the benefits 
included in the MV Calculator: (1) A plan with a $3,500 integrated 
medical and drug deductible, 80 percent plan cost-sharing, and a $6,000 
maximum out-of-pocket limit for employee cost-sharing; (2) a plan with 
a $4,500 integrated medical and drug deductible, 70 percent plan cost-
sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer 
contribution to an HSA; and (3) a plan with a $3,500 medical 
deductible, $0 drug deductible, 60 percent plan medical expense cost-
sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-
pocket limit, and drug co-pays of $10/$20/$50 for the first, second and 
third prescription drug tiers, with 75 percent coinsurance for 
specialty drugs. Comments are requested on these and other common plan 
designs that would satisfy MV and should be designated as safe harbors.
    Consistent with 45 CFR 156.145(a), the proposed regulations require 
plans with nonstandard features that cannot determine MV using the MV 
Calculator or a safe harbor to use the actuarial certification method. 
The actuary must be a member of the American Academy of Actuaries and 
must perform the analysis in accordance with generally accepted 
actuarial principles and methodologies and any additional standards 
that subsequent guidance requires.
f. Other Issues
    Commentators suggested a de minimis exception to the MV 60 percent 
level of coverage, noting that similar de minimis variations are 
permitted in determining actuarial value for qualified health plans. 
However, as other commentators noted, permitting a de minimis exception 
would have the effect of lowering the minimum level of coverage to a 
percentage below 60 percent. Under section 36B(c)(2)(C)(ii), coverage 
below 60 percent does not provide MV. Accordingly, the proposed 
regulations do not provide for a de minimis exception.

2. Miscellaneous Issues Under Section 36B

a. Definition of Modified Adjusted Gross Income
    Section 36B(d)(2) provides that the term household income means the 
modified adjusted gross income of the taxpayer plus the modified 
adjusted gross income of all members of the taxpayer's family required 
to file a tax return under section 1 for the taxable year. The final 
regulations provide that the determination of whether a family member 
is required to file a return is made without regard to section 1(g)(7). 
Under section 1(g)(7), a parent may, if certain requirements are met, 
elect to include in the parent's gross income, the gross income of his 
or her child. If the parent makes the election, the child is treated as 
having no gross income for the taxable year.
    The proposed regulations remove ``without regard to section 
1(g)(7)'' from the final regulations because that language implies that 
the child's gross income is included in both the parent's adjusted 
gross income and the child's adjusted gross income in determining 
household income. Thus, the proposed regulations clarify that if a 
parent makes an election under section 1(g)(7), household income 
includes the child's gross income included on the parent's return and 
the child is treated as having no gross income.
b. Rating Area
    Section 36B(b)(3)(B) determines the applicable benchmark plan by 
reference to the rating area where a taxpayer resides. The final 
regulations reserved the definition of rating area. The proposed 
regulations provide that the term rating area has the same meaning as 
used in section 2701(a)(2) of the Public Health Service Act (42 U.S.C. 
300gg) and 45 CFR 156.255.
c. Retiree Coverage
    The section 36B final regulations provide that an individual who 
may enroll in continuation coverage required under Federal law or a 
State law that provides comparable continuation coverage is eligible 
for minimum essential coverage only for months that the individual is 
enrolled in the coverage. These proposed regulations apply this rule to 
former employees

[[Page 25913]]

only. Active employees eligible for continuation coverage as a result 
of reduced hours should be subject to the same rules for eligibility of 
affordable employer-sponsored coverage offering MV as other active 
employees. The proposed regulations add a comparable rule for health 
coverage offered to retired employees (retiree coverage). Accordingly, 
an individual who may enroll in retiree coverage is eligible for 
minimum essential coverage under the coverage only for the months the 
individual is enrolled in the coverage.
d Coverage Month for Newborns and New Adoptees
    Under section 36B(c)(2)(A)(i) and the final regulations, a month is 
a coverage month for an individual only if, as of the first day of the 
month, the individual is enrolled in a qualified health plan through an 
Exchange. A child born or adopted during the month is not enrolled in 
coverage on the first day and therefore would not be eligible for the 
premium tax credit or cost-sharing reductions for that month. 
Accordingly, the proposed regulations provide that a child enrolled in 
a qualified health plan in the month of the child's birth, adoption, or 
placement with the taxpayer for adoption or in foster care, is treated 
as enrolled as of the first day of the month.
e. Adjusted Monthly Premium for Family Members Enrolled for Less Than a 
Full Month
    Under section 36B(c), the premium assistance amount for a coverage 
month is computed by reference to the adjusted monthly premium for an 
applicable benchmark plan. The final regulations provide that the 
applicable benchmark plan is the plan that applies to a taxpayer's 
coverage family. The final regulations do not address whether changes 
to a coverage family, for example as the result of the birth and 
enrollment of a child or the disenrollment of another family member, 
that occur during the month affect the premium assistance amount. The 
proposed regulations provide that the adjusted monthly premium is 
determined as if all members of the coverage family for that month were 
enrolled in a qualified health plan for the entire month.
f. Premium Assistance Amount for Partial Months of Coverage
    The final regulations do not address the computation of the premium 
assistance amount if coverage under a qualified health plan is 
terminated during the month. The proposed regulations provide that when 
coverage under a qualified health plan is terminated before the last 
day of a month and, as a result, the issuer reduces or refunds a 
portion of the monthly premium the premium assistance amount for the 
month is prorated based on the number of days of coverage in the month.
g. Family Members Residing at Different Locations
    The final regulations reserved rules on determining the premium for 
the applicable benchmark plan if family members are geographically 
separated and enroll in separate qualified health plans. The proposed 
regulations provide that the premium for the applicable benchmark plan 
in this situation is the sum of the premiums for the applicable 
benchmark plans for each group of family members residing in a 
different State.
h. Correction to Applicable Percentage Table
    The applicable percentage table in the final regulations 
erroneously states that the 9.5 percentage applies only to taxpayers 
whose household income is less than 400 percent of the FPL. The 
proposed regulations clarify that the 9.5 percentage applies to 
taxpayers whose household income is not more than 400 percent of the 
FPL.
i. Additional Benefits and Applicable Benchmark Plan
    Under section 36B(b)(3)(D) and the final regulations, only the 
portion of the premium for a qualified health plan properly allocable 
to EHBs determines a taxpayer's premium assistance amount. Premiums 
allocable to benefits other than EHBs (additional benefits) are 
disregarded. The final regulations do not address, however, whether a 
taxpayer's benchmark plan is determined before or after premiums have 
been allocated to additional benefits. The proposed regulations provide 
that premiums are allocated to additional benefits before determining 
the applicable benchmark plan. Thus, only essential health benefits are 
considered in determining the applicable benchmark plan, consistent 
with the requirement in section 36B(b)(3)(D) that only essential health 
benefits are considered in determining the premium assistance amount. 
In addition, allocating premium to benefits that exceed EHBs before 
determining the applicable benchmark plan results in a more accurate 
determination of the premium assistance amount.
j. Requirement To File a Return To Reconcile Advance Credit Payments
    The final regulations provided that a taxpayer who receives advance 
credit payments must file an income tax return for that taxable year on 
or before the fifteenth day of the fourth month following the close of 
the taxable year. Under the proposed regulations, a taxpayer who 
receives advance credit payments must file an income tax return on or 
before the due date for the return (including extensions).

Effective/Applicability Date

    These regulations are proposed to apply for taxable years ending 
after December 31, 2013. Taxpayers may apply the proposed regulations 
for taxable years ending before January 1, 2015.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations and, because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, this notice of proposed rulemaking has 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ``Addresses'' 
heading. Treasury and the IRS request comments on all aspects of the 
proposed rules. All comments will be available at www.regulations.gov 
or upon request. A public hearing will be scheduled if requested in 
writing by any person who timely submits written comments. If a public 
hearing is scheduled, notice of the date, time and place for the 
hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Andrew S. 
Braden, Frank W. Dunham III, and

[[Page 25914]]

Stephen J. Toomey of the Office of Associate Chief Counsel (Income Tax 
and Accounting). However, other personnel from the IRS and the Treasury 
Department participated in the development of the regulations.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *

0
Par. 2. Section 1.36B-0 is amended by:
0
1. Revising the introductory text.
0
2. Adding new entries for Sec. Sec.  1.36B-2(c)(3)(iv) and 
(c)(3)(v)(A)(5) and 1.36B-3(c)(2) and (3), and (d)(1), (2), and (3).
0
3. Revising the entries for Sec. Sec.  1.36B-2(c)(3)(v)(A)(4) and 
1.36B-3(c)(4).
0
4. Adding new entries for Sec.  1.36B-6.
    The revisions and additions read as follows.


Sec.  1.36B-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.36B-1 
through 1.36B-6.
* * * * *


Sec.  1.36B-2  Eligibility for premium tax credit.

* * * * *
    (c) * * *
    (3) * * *
    (iv) Post-employment coverage.
    (v) * * *
    (A) * * *
    (4) Wellness incentives.
    (5) Employer contributions to health reimbursement arrangements.
* * * * *


Sec.  1.36B-3  Computing the premium assistance credit amount.

* * * * *
    (c) * * *
    (2) Child born or adopted during a month.
    (3) Premiums paid for a taxpayer.
    (4) Examples.
    (d) * * *
    (1) In general.
    (2) Mid-month termination of coverage.
    (3) Example.
* * * * *


Sec.  1.36B-6  Minimum value.

    (a) In general.
    (b) MV standard population.
    (c) MV percentage.
    (1) In general.
    (2) Wellness incentives.
    (i) In general.
    (ii) Example.
    (3) Health savings accounts.
    (4) Health reimbursement arrangements.
    (5) Expected spending adjustments for health savings accounts and 
health reimbursement arrangements.
    (d) Methods for determining MV.
    (e) Scope of essential health benefits and adjustment for benefits 
not included in MV Calculator.
    (f) Actuarial certification.
    (1) In general.
    (2) Membership in American Academy of Actuaries.
    (3) Actuarial analysis.
    (4) Use of MV Calculator.
    (g) Effective/applicability date.
0
Par. 3. Section 1.36B-1 is amended by revising paragraph (e)(1)(ii)(B) 
and adding paragraph (n) to read as follows:


Sec.  1.36B-1  Premium tax credit definitions.

* * * * *
    (e) * * *
    (1) * * *
    (ii) * * *
    (B) Are required to file a return of tax imposed by section 1 for 
the taxable year.
* * * * *
    (n) Rating area. The term rating area has the same meaning as used 
in section 2701(a)(2) of the Public Health Service Act (42 U.S.C. 
300gg(a)(2)) and 45 CFR 156.255.
* * * * *
0
Par. 4. Section 1.36B-2 is amended by:
0
1. Revising paragraphs (c)(3)(iv), (c)(3)(v)(A)(4), and (c)(3)(vi).
0
2. Adding paragraphs (c)(3)(v)(A)(5) and (c)(3)(v)(D), Example 9.
    The revisions and additions read as follows:


Sec.  1.36B-2  Eligibility for premium tax credit.

* * * * *
    (c) * * *
    (3) * * *
    (iv) Post-employment coverage. A former employee who may enroll in 
continuation coverage required under Federal law or a State law that 
provides comparable continuation coverage, and an individual who may 
enroll in retiree coverage under an eligible employer-sponsored plan, 
are eligible for minimum essential coverage under this coverage only 
for months that the individual is enrolled in the coverage.
* * * * *
    (v) * * *
    (A) * * *
    (4) Wellness incentives. Nondiscriminatory wellness program 
incentives offered by an eligible employer-sponsored plan that affect 
premiums are treated as earned in determining an employee's required 
contribution for purposes of affordability of an eligible employer-
sponsored plan to the extent the incentives relate to tobacco use. 
Wellness program incentives that do not relate to tobacco use are 
treated as not earned for this purpose.
    (5) Employer contributions to health reimbursement arrangements. 
Amounts newly made available for the current plan year under a health 
reimbursement arrangement that is integrated with an eligible employer-
sponsored plan and that an employee may use to pay premiums are counted 
toward the employee's required contribution.
* * * * *
    (D) * * *

    Example 9.  Wellness incentives. (i) Employer X offers an 
eligible employer-sponsored plan with a nondiscriminatory wellness 
program that reduces premiums by $300 for employees who do not use 
tobacco products or who complete a smoking cessation course. 
Premiums are reduced by $200 if an employee completes cholesterol 
screening within the first six months of the plan year. Employee B 
does not use tobacco and the cost of his premiums is $3,700. 
Employee C uses tobacco and the cost of her premiums is $4,000.
    (ii) Under paragraph (c)(3)(v)(A)(4) of this section, only the 
incentives related to tobacco use are counted toward the premium 
amount used to determine the affordability of X's plan. C is treated 
as having earned the $300 incentive for attending a smoking 
cessation course. Thus, the employee's required contribution to 
premium for determining affordability for both Employees B and C is 
$3,700. The $200 incentive for completing cholesterol screening is 
disregarded.

    (vi) Minimum value. See Sec.  1.36B-6 for rules for determining 
whether an eligible employer-sponsored plan provides minimum value.
* * * * *
0
Par. 5. Section 1.36B-3 is amended by:
0
1. Redesignating paragraphs (c)(2) and (c)(3) as paragraphs (c)(3) and 
(c)(4) and adding a new paragraph (c)(2).
0
2. Revising paragraphs (d), (g)(2), (j)(1), and (j)(3).
0
3. Adding a sentence to the end of paragraph (e).
0
4. Adding paragraph (f)(4).
    The revisions and additions read as follows:


Sec.  1.36B-3  Computing the premium assistance credit amount.

* * * * *
    (c) * * *
    (2) Child born or adopted during a month. A child enrolled in a 
qualified

[[Page 25915]]

health plan in the month of the child's birth, adoption, or placement 
with the taxpayer for adoption or in foster care, is treated as 
enrolled as of the first day of the month for purposes of this 
paragraph (c).
* * * * *
    (d) Premium assistance amount--(1) In general. Except as provided 
in paragraph (d)(2) of this section, the premium assistance amount for 
a coverage month is the lesser of--
    (i) The premiums for the month for one or more qualified health 
plans in which a taxpayer or a member of the taxpayer's family enrolls; 
or
    (ii) The excess of the adjusted monthly premium for the applicable 
benchmark plan over 1/12 of the product of a taxpayer's household 
income and the applicable percentage for the taxable year.
    (2) Mid-month termination of coverage. If a qualified health plan 
is terminated before the last day of a month and, as a result, the 
issuer reduces or refunds a portion of the monthly premium, the premium 
assistance amount for the coverage month is the amount that would apply 
under paragraph (d)(1) of this section for the entire month multiplied 
by a fraction, the numerator of which is the number of days of 
enrollment in the month and the denominator of which is the number of 
days in the month.
    (3) Example. The following example illustrates the provisions of 
this paragraph (d):

    Example. (i) Taxpayer R is single and has no dependents. R 
enrolls in a qualified health plan for 2014 with a monthly premium 
of $450. The adjusted monthly premium for R's applicable benchmark 
plan is $490 and 1/12 of the product of R's household income and 
applicable percentage for 2014 (R's contribution amount) is $190. R 
takes a new job in September of 2014, enrolls in the employer-
sponsored plan, and terminates his enrollment in the qualified 
health plan, effective on September 10, 2014. The issuer of R's 
qualified health plan refunds \2/3\ of the September premium for R's 
coverage.
    (ii) Under paragraph (d)(1) of this section, R's premium 
assistance amount for the months January-August of 2014 is $300, the 
lesser of $450 (the monthly premium for the plan in which R enrolls) 
and $300 (the excess of the adjusted monthly premium for R's 
applicable benchmark plan ($490) over R's contribution amount 
($190)). Under paragraph (d)(2) of this section, R's premium 
assistance amount for September is $100, the premium assistance 
amount for September had R been enrolled for the full month ($300), 
times 10/30 (the number of days R is enrolled in September, over the 
number of days in September).

    (e) * * * The adjusted monthly premium is determined as if all 
members of the coverage family for that month were enrolled in the 
qualified health plan for the entire month.
    (f) * * *
    (4) Family members residing at different locations. The premium for 
the applicable benchmark plan determined under paragraphs (f)(1) and 
(f)(2) of this section for family members who live in different States 
and enroll in separate qualified health plans is the sum of the 
premiums for the applicable benchmark plans for each group of family 
members living in the same State.
* * * * *
    (g) * * *
    (2) Applicable percentage table.

------------------------------------------------------------------------
 Household income percentage of Federal       Initial          Final
              poverty line                  percentage      percentage
------------------------------------------------------------------------
Less than 133%..........................             2.0             2.0
At least 133% but less than 150%........             3.0             4.0
At least 150% but less than 200%........             4.0             6.3
At least 200% but less than 250%........             6.3            8.05
At least 250% but less than 300%........            8.05             9.5
At least 300% but not more than 400%....             9.5             9.5
------------------------------------------------------------------------

* * * * *
    (j) Additional benefits--(1) In general. If a qualified health plan 
offers benefits in addition to the essential health benefits a 
qualified health plan must provide under section 1302 of the Affordable 
Care Act (42 U.S.C. 18022), or a State requires a qualified health plan 
to cover benefits in addition to these essential health benefits, the 
portion of the premium for the plan properly allocable to the 
additional benefits is excluded from the monthly premiums under 
paragraph (d)(1) or (d)(2) of this section. Premiums are allocated to 
additional benefits before determining the applicable benchmark plan 
under paragraph (f) of this section.
* * * * *
    (3) Examples. The following examples illustrate the rules of this 
paragraph (j):

    Example 1.  (i) Taxpayer B enrolls in a qualified health plan 
that provides benefits in addition to essential health benefits 
(additional benefits). The monthly premium for the plan in which B 
enrolls is $370, of which $35 is allocable to additional benefits. 
The premium for B's applicable benchmark plan (determined after 
allocating premiums to additional benefits for all silver level 
plans) is $440, of which $40 is allocable to additional benefits. 
B's contribution amount, which is the product of B's household 
income and the applicable percentage, is $60.
    (ii) Under this paragraph (j), the premium for the qualified 
health plan in which B enrolls and the applicable benchmark premium 
are reduced by the portion of the premium that is allocable to the 
additional benefits provided under that plan. Therefore, the premium 
for the qualified health plan in which B enrolls is reduced to $335 
($370-$35) and the premium for B's applicable benchmark plan is 
reduced to $400 ($440-$40). B's premium assistance amount for a 
coverage month is $335, the lesser of $335 (the premium for the 
qualified health plan in which B enrolls, reduced by the portion of 
the premium allocable to additional benefits) and $340 (the premium 
for B's applicable benchmark plan, reduced by the portion of the 
premium allocable to additional benefits ($400), minus B's $60 
contribution amount).
    Example 2.  The facts are the same as in Example 1, except that 
the plan in which B enrolls provides no benefits in addition to the 
essential health benefits required to be provided by the plan. Thus, 
under paragraph (j) of this section, the premium for B's applicable 
benchmark plan ($440) is reduced by the portion of the premium 
allocable to additional benefits provided under that plan ($40). The 
premium for the plan in which B's enrolls ($370) is not reduced 
under this paragraph (j). B's premium assistance amount for a 
coverage month is $340, the lesser of $370 (the premium for the 
qualified health plan in which B enrolls) and $340 (the premium for 
B's applicable benchmark plan, reduced by the portion of the premium 
allocable to additional benefits ($400), minus B's $60 contribution 
amount).
* * * * *
0
Par. 6. Section 1.36B-6 is added to read as follows:


Sec.  1.36B-6  Minimum value.

    (a) In general. An eligible employer-sponsored plan provides 
minimum value (MV) only if the plan's share of the total allowed costs 
of benefits provided to an employee (the MV percentage) is at least 60 
percent.
    (b) MV standard population. The MV standard population is a 
standard population developed and described through summary statistics 
by the Department of Health and Human Services (HHS). The MV standard 
population is based on the population

[[Page 25916]]

covered by typical self-insured group health plans.
    (c) MV percentage--(1) In general. An eligible employer-sponsored 
plan's MV percentage is--
    (i) The plan's anticipated covered medical spending for benefits 
provided under a particular essential health benefits (EHB) benchmark 
plan described in 45 CFR 156.110 (EHB coverage) for the MV standard 
population based on the plan's cost-sharing provisions;
    (ii) Divided by the total anticipated allowed charges for EHB 
coverage provided to the MV standard population; and
    (iii) Expressed as a percentage.
    (2) Wellness incentives--(i) In general. Nondiscriminatory wellness 
program incentives offered by an eligible employer-sponsored plan that 
affect deductibles, copayments, or other cost-sharing are treated as 
earned in determining the plan's MV percentage to the extent the 
incentives relate to tobacco use. These wellness program incentives 
that do not relate to tobacco use are treated as not earned.
    (ii) Example. The following example illustrates the rules of this 
paragraph (c)(2):
    Example. (i) Employer X offers an eligible employer-sponsored 
plan that reduces the deductible by $300 for employees who do not 
use tobacco products or who complete a smoking cessation course. The 
deductible is reduced by $200 if an employee completes cholesterol 
screening within the first six months of the plan year. Employee B 
does not use tobacco and his deductible is $3,700. Employee C uses 
tobacco and her deductible is $4,000.
    (ii) Under paragraph (c)(2)(i) of this section, only the 
incentives related to tobacco use are considered in determining the 
plan's MV percentage. C is treated as having earned the $300 
incentive for attending a smoking cessation course. Thus, the 
deductible for determining for the MV percentage for both Employees 
B and C is $3,700. The $200 incentive for completing cholesterol 
screening is disregarded.

    (3) Health savings accounts. Employer contributions for the current 
plan year to health savings accounts that are offered with an eligible 
employer-sponsored plan are taken into account for that plan year 
towards the plan's MV percentage.
    (4) Health reimbursement arrangements. Amounts newly made available 
for the current plan year under a health reimbursement arrangement that 
is integrated with an eligible employer-sponsored plan are taken into 
account for that plan year towards the plan's MV percentage if the 
amounts may be used only to reduce cost-sharing for covered medical 
expenses.
    (5) Expected spending adjustments for health savings accounts and 
health reimbursement arrangements. The amount taken into account under 
paragraph (c)(3) or (c)(4) of this section is the amount of expected 
spending for health care costs in a benefit year.
    (d) Methods for determining MV. An eligible employer-sponsored plan 
may use one of the following methods to determine whether the plan 
provides MV--
    (1) The MV Calculator made available by HHS and IRS, with 
adjustments permitted by paragraph (e) of this section;
    (2) One of the safe harbors established by HHS and IRS and 
described in published guidance, see Sec.  601.601(d) of this chapter;
    (3) Actuarial certification, as described in paragraph (f) of this 
section, if an eligible employer-sponsored plan has nonstandard 
features that are not compatible with the MV Calculator and may 
materially affect the MV percentage; or
    (4) For plans in the small group market, conformance with the 
requirements for a level of metal coverage defined at 45 CFR 156.140(b) 
(bronze, silver, gold, or platinum).
    (e) Scope of essential health benefits and adjustment for benefits 
not included in MV Calculator. An eligible employer-sponsored plan may 
include in calculating its MV percentage all benefits included in any 
EHB benchmark (as defined in 45 CFR part 156). An MV percentage that is 
calculated using the MV Calculator may be adjusted based on an 
actuarial analysis that complies with the requirements of paragraph (f) 
of this section to the extent of the value of these benefits that are 
outside the parameters of the MV Calculator.
    (f) Actuarial certification--(1) In general. An actuarial 
certification under paragraph (d)(3) of this section must satisfy the 
requirements of this paragraph (f).
    (2) Membership in American Academy of Actuaries. The actuary must 
be a member of the American Academy of Actuaries.
    (3) Actuarial analysis. The actuary's analysis must be performed in 
accordance with generally accepted actuarial principles and 
methodologies and specific standards that may be provided in published 
guidance, see Sec.  601.601(d) of this chapter.
    (4) Use of MV Calculator. The actuary must use the MV Calculator to 
determine the plan's MV percentage for coverage the plan provides that 
is measurable by the MV Calculator. The actuary may perform an 
actuarial analysis of the plan's EHB coverage for the MV standard 
population for benefits not measured by the MV Calculator to determine 
the effect of nonstandard features that are not compatible with the MV 
Calculator. The actuary may certify the plan's MV percentage based on 
the MV percentage that results from use of the MV Calculator and the 
actuarial analysis of the plan's coverage that is not measured by the 
MV calculator.
    (g) Effective/applicability date. This section applies for taxable 
years ending after December 31, 2013.
0
Par. 7. Section 1.6011-8 is amended by revising paragraph (a) to read 
as follows:


Sec.  1.6011-8  Requirement of income tax return for taxpayers who 
claim the premium tax credit under section 36B.

    (a) Requirement of return. A taxpayer who receives advance payments 
of the premium tax credit under section 36B must file an income tax 
return for that taxable year on or before the due date for the return 
(including extensions of time for filing).
* * * * *

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-10463 Filed 4-30-13; 4:15 pm]
BILLING CODE 4830-01-P