Officials from the Department of Health and Human Services (HHS) announced late Wednesday that they are working on official guidance that will allow individuals additional time to get health insurance coverage before incurring a penalty.
The Affordable Care Act (ACA) requires nearly all individuals, beginning on January 1, 2014, to maintain health insurance coverage or pay a tax penalty. The regulations implementing this provision, commonly referred to as the Individual Mandate, allow a grace period such that an individual can go without coverage for a period of time “less than three full calendar months” in a calendar year and avoid the tax penalty. The announcement yesterday effectively extends this grace period in 2014 to four months.
According to the current Marketplace rules, if you enroll in coverage between the 1st and the 15th of the month, the coverage will be effective on the first day of the following month. If you enroll in coverage after the 15th of the month, the coverage is not effective until the first day of the second month following the enrollment date. Under the current regulations, an individual seeking insurance through the Marketplace would have to enroll in coverage on or before February, 2014 in order to have coverage effective on April 1st and avoid a tax penalty. (Remember, the grace period is not three consecutive months, but “less than” three consecutive months.) Yesterday’s announcement elongates the grace period by exempting from penalty individuals who enroll by March 31st. Coverage for those who enroll between March 15 and March 31 will not be effective until May 1, 2014. These individuals will not have had coverage for four full months in 2014, but according to the announcement yesterday, will still not be subject to a tax penalty. The tax penalty for individuals without coverage in 2014 is $95 or 1% of income, whichever is greater. The penalty goes up to $695 or 2.5% of income, whichever is greater, in 2016.
With open enrollment available through March 31, 2014, many individuals might expect they would avoid a tax penalty as long as they enrolled by the end of open enrollment. The change announced by HHS yesterday aligns the regulations with that common expectation.
Read the news reports about the HHS announcement at Kaiser and The New York Times and The Washington Post. Read the IRS final regulations about the shared responsibility payment for not maintaining minimum essential coverage here.
