Definition of the Term “Coverage Month” for Computing the Premium Tax Credit

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 10019]</DEPDOC> <RIN>RIN 1545-BR31</RIN> <SUBJECT>Definition of the Term “Coverage Month” for Computing the Premium Tax Credit</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains final regulations that amend the definition of “coverage month” and amend certain other rules in existing income tax regulations regarding the computation of an individual taxpayer's premium tax credit. The coverage month amendment generally provides that, in computing a premium tax credit, a month may be a coverage month for an individual if the amount of the premium paid, including by advance payments of the premium tax credit, for the month for the individual's coverage is sufficient to avoid termination of the individual's coverage for that month. The final regulations also amend the existing regulations relating to the amount of enrollment premiums used in computing the taxpayer's monthly premium tax credit if a portion of the monthly enrollment premium for a coverage month is unpaid. Finally, the final regulations clarify when an individual is considered to be not eligible for coverage under a State's Basic Health Program. The final regulations affect taxpayers who enroll themselves, or enroll a family member, in individual health insurance coverage through a Health Insurance Exchange and may be allowed a premium tax credit for the coverage. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These final regulations are effective on December 18, 2024. <E T="03">Applicability date:</E> These final regulations apply to taxable years beginning on or after January 1, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Clara Raymond at (202) 317-4718 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 36B of the Internal Revenue Code (Code). <SU>1</SU> <FTREF/> Section 36B(h) provides an express delegation of authority for the Secretary of the Treasury or her delegate (Secretary) to prescribe such regulations as may be necessary to carry out section 36B, including regulations that provide for the coordination of the premium tax credit (PTC) allowed under 36B with the program for advance payments of the PTC (APTC) under section 1412 of the Affordable Care Act. <SU>2</SU> <FTREF/> The final regulations are also issued under the express delegation of authority under section 7805(a), which authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” <FTNT> <SU>1</SU>  Unless otherwise indicated, references to “section” or “§ ” are to sections of the Code or the Treasury regulations issued thereunder. </FTNT> <FTNT> <SU>2</SU>  The Affordable Care Act (or ACA) refers to the Patient Protection and Affordable Care Act (Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010). </FTNT> <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">I. Section 36B Rules Relating to Coverage Months and Monthly PTC Amount</HD> Section 36B provides a PTC for applicable taxpayers who meet certain eligibility requirements, including that a member of the taxpayer's family enrolls in a qualified health plan (QHP) through a Health Insurance Exchange (Exchange) for one or more “coverage months.” Section 1.36B-3(c)(1) provides that a month is a coverage month for an individual if (i) as of the first day of the month, the individual is enrolled in a QHP through an Exchange; (ii) the taxpayer pays the taxpayer's share of the premium for the individual's coverage under the plan for the month by the unextended due date for filing the taxpayer's income tax return for that taxable year, or the full premium for the month is paid by APTC; and (iii) the individual is not eligible for the full calendar month for minimum essential coverage (within the meaning of § 1.36B-2(c)) other than coverage described in section 5000A(f)(1)(C) of the Code (relating to coverage in the individual market). Section 1.36B-3(d)(1) provides that the PTC (also called the premium assistance amount) for a coverage month is the lesser of (i) the premiums for the month, reduced by any amounts that were refunded, for one or more QHPs in which a taxpayer or a member of the taxpayer's family enrolls (enrollment premiums); or (ii) the excess of the adjusted monthly premium for the applicable benchmark plan over <FR>1/12</FR> of the product of a taxpayer's household income and the applicable percentage for the taxable year. The term “family” is defined in § 1.36B-1(d), and the applicable percentage is defined in § 1.36B-3(g). Section 1.36B-2(c)(2)(i) provides that, for purposes of determining whether a given month is a coverage month for an individual, an individual generally is considered eligible for government-sponsored minimum essential coverage if the individual meets the criteria for coverage under a government-sponsored program described in section 5000A(f)(1)(A) as of the first day of the first full month the individual may receive benefits under the program. Section 1.36B-2(c)(2)(v) provides that an individual is treated as not eligible for Medicaid, CHIP, or a similar program for a period of coverage under a QHP if, when the individual enrolls in the QHP, an Exchange determines or considers (within the meaning of 45 CFR 155.302(b)) the individual to be not eligible for Medicaid or CHIP. Section 36B(f)(3) and § 1.36B-5 require Exchanges to report to QHP enrollees and the IRS certain information, including monthly enrollment premiums, needed to compute the PTC allowed for the enrollee. This information is reported to enrollees on IRS Form 1095-A, <E T="03">Health Insurance Marketplace Statement.</E> The Centers for Medicare & Medicaid Services (CMS), part of the Department of Health and Human Services (HHS), is responsible for the Form 1095-A reporting for Exchanges that use the Federal eligibility and enrollment platform (Federally-facilitated Exchanges, or FFEs, and State-based Exchanges on the Federal platform, or SBE-FPs). State Exchanges with their own platforms (State Exchanges) are responsible for the Form 1095-A reporting for individuals who enroll in a QHP through their State Exchange. <HD SOURCE="HD2">II. HHS Rules Relating to Coverage When Premiums Are Unpaid</HD> HHS regulations at 45 CFR 156.270(d) implement section 1412(c)(2)(B)(iv)(II) of the Affordable Care Act to require issuers of QHPs to allow a “grace period” for enrollees for whom the APTC is paid but who fail to timely pay their share of the premium for the coverage. In general, a QHP issuer must provide a grace period of 3 consecutive months for such an enrollee before the issuer may terminate the enrollee's coverage. During the first month of the grace period, the QHP issuer must pay all appropriate claims for services rendered, and, during the second and third months of the grace period, the QHP issuer may pend claims. HHS regulations at 45 CFR 155.400(g) allow issuers to implement a premium payment threshold policy under which issuers can consider enrollees to have paid all amounts due if the enrollees pay an amount sufficient to maintain a percentage of total premium paid out of the total premium owed equal to or greater than a level prescribed by the issuer, provided that the level and the policy are applied in a uniform manner to all enrollees. If an enrollee satisfies these conditions, the issuer may provide coverage even though the full enrollment premium is not paid. In certain States, issuers also may provide coverage without payment of the full enrollment premium if a State department of insurance prohibits an issuer from terminating QHP coverage during a declared emergency. <HD SOURCE="HD2">III. Proposed Regulations</HD> On September 17, 2024, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG-116787-23) in the <E T="04">Federal Register</E> (89 FR 75984) under section 36B (proposed regulations). The proposed regulations would have changed the definition of “coverage month” in § 1.36B-3(c)(1) for some scenarios for which the full premium for the month is unpaid by the unextended due date of the taxpayer's return for the year of coverage, provided the amount of the premium paid for the month, including by APTC, is sufficient to avoid termination of the individual's coverage for that month. The proposed regulations would have provided that a month for which the enrollment premium is not fully paid may be a coverage month in the following scenarios: (i) the first month of a grace period described in 45 CFR 156.270(d); (ii) a month for which a premium payment threshold under 45 CFR 155.400(g) has been met and for which month the issuer of the individual's qualified health plan provides coverage; and (iii) a month for which a State department of insurance has, during a declared emergency, issued an order prohibiting the issuer of the individual's qualified health plan from terminating the individual's coverage for the month irrespective of whether the full premium for the month is paid. The proposed amendment to the definition of “coverage month” would have required a conforming change to the calculation of the monthly PTC amount under § 1.36B-3(d)(1)(i) so that the premium for a month to be cons ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 36k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━