New IRS Notice Addresses COVID-19, Medicaid, and the ACA
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New IRS guidance addresses the intersection of COVID-19, Medicaid, and the Affordable Care Act (ACA). In a bid to increase COVID-19 testing in the U.S., one facet of the Families First Coronavirus Response Act (FFCRA) passed in March 2020 included creating a new group of persons eligible for Medicaid assistance, specifically pertaining to COVID-19 testing and diagnostics. According to FFCRA Frequently Asked Questions posted to Medicaid.gov, “Individuals eligible for the new group receive a limited benefit package of services related to testing and diagnosis of COVID-19 that are rendered during the emergency period.” But the new Medicaid eligibility group had the potential to create an unfortunate side-effect related to the ACA.
Beginning in 2014, the ACA allowed individuals who purchased a qualified health plan through a Health Insurance Exchange (such as Covered California) to obtain a Premium Tax Credit (PTC) to help pay for the health plan. Generally, a PTC is only available for months in which an individual is not eligible for “Minimum Essential Coverage.” Minimum Essential Coverage, or MEC, is an important element of the ACA and generally includes coverage under government programs, such as Medicaid. Therefore, in creating a new eligibility group under Medicaid, Congress may have inadvertently created a reverse incentive for COVID-19 testing, if the new eligibility resulted in certain individuals losing their Premium Tax Credits.
Fortunately, the IRS has stepped in with interim guidance in the form of Notice 2020-66. In this Notice, the IRS advised that Medicaid coverage limited to COVID-19 testing and diagnostics under FFCRA is not Minimum Essential Coverage, thereby avoiding the potential reverse incentive. Individuals eligible for the new Medicaid group will not be prevented by virtue of this eligibility from obtaining a PTC. Note: this guidance applies to tax years 2020 and beyond. Until further guidance is issued, the IRS notes that taxpayers can rely on this interim guidance.
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