Final IRS healthcare reform rules address federal premium subsidies

Final Internal Revenue Service healthcare reform law regulations affirm that low- and middle-income retirees younger than age 65 who are eligible for healthcare coverage from their former employers—but do not actually enroll in the plans—will be eligible for federal premium subsidies in 2014 to buy coverage through public exchanges.

In addition, the regulations that were released Tuesday (PDF) affirm proposed rules that former employees and dependents, such as widowed or divorced spouses, who are eligible for but not enrolled in COBRA continuation coverage also will be eligible for the federal premium subsidies.

Whether pre-Medicare-eligible retirees retain coverage through their former employers or opt for exchange coverage will depend on the cost and their income.

“This final guidance is excellent news for both retirees and employers who want to utilize exchange coverage for retiree coverage,” said Rich Stover, a principal with Buck Consultants in Secaucus, N.J.

The federal premium subsidies will be available to those with household incomes up to 400% of the federal poverty level, which is $45,960 for an individual and $94,200 for a family of four this year. Poverty level figures for 2014 are not yet available.

In the case of COBRA, because beneficiaries pay the full premium for such coverage, opting for federally subsidized policies offered through exchanges will in almost all cases cost less than COBRA, except for individuals whose incomes are too high to allow them to qualify for the federal subsidies.

While COBRA beneficiaries likely will reap significant premium savings by enrolling in exchanges due to the subsidies, employers also will save money.

That is due to the adverse selection that is inherent in COBRA. Because COBRA is so expensive, those opting for coverage are those most likely to use healthcare services. Benefit experts have said for every $1 employers collect in COBRA premiums, they typically pay out $1.50 in claims.

"Final IRS healthcare reform rules address federal premium subsidies" originally appeared on the website of Crain's Business Insurance.



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