On October 28, 2013, the Centers for Medicare & Medicaid Services (CMS) releasedguidance clarifying that individuals have until March 31, 2014 to enroll in the health insurance exchanges.  (More information on the health insurance exchanges is availablehere.)  

What’s the issue? 

The Administration has previously announced the open enrollment period for the new health insurance exchanges would run from October 1, 2013 through Mach 31, 2014.

The Affordable Care Act (ACA) also imposes an individual mandate requirement, which provides that beginning January 1, 2014, individuals must have health insurance coverage or face a penalty.  This penalty is assessed on the individual’s federal income tax return for the following year.  (More information on this requirement is available here.)  In establishing the individual mandate requirement, the Internal Revenue Service (IRS) determined the penalty would not apply to individuals who have a gap in health insurance coverage for less than three months.

So, what’s the problem?

The problem comes from fact that there is a lag between when an individual signs up for health insurance coverage and when the coverage begins.  Under the rules, if an individual selects a plan and pays his/her premiums between the 1st and the 15th of a given month, his/her coverage begins on the first day of the following month.  However, if the individual selects a plan between the 16th and the end of a given month, his/her coverage will not begin until the first day of the second following month.  Below are some examples to illustrate the issue.

Example 1:

Betty does not have any health insurance coverage and decides to sign up for coverage in the health insurance exchange operating in her state.  She signs up for health coverage and pays her premiums on February 10, 2014.  Her health insurance coverage will begin on March 1, 2014.

Because she experienced a gap in coverage of less than three months, she will not be assessed an individual mandate penalty.

Example 2:

Bobby does not have any health insurance coverage and decides to sign up for coverage in the health insurance exchange operating in his state.  He waits until March 20, 2014 (still within the open enrollment period) to sign up for coverage and pay his premiums.  His coverage will begin on May 1, 2014 (the second following month).

However, because he experienced a gap in health insurance coverage of more than three months, prior to the CMS guidance, he would be assessed an individual mandate penalty.

What does the CMS guidance do?

The CMS guidance clarifies that an individual mandate penalty would not be assessed against anyone who signs up for coverage and pays his/her premiums before the end of the open enrollment period.  So, Bobby in Example 2 would not be assessed an individual mandate penalty even though he was without health insurance coverage for more than three months.

CMS will be issuing additional guidance next year to provide additional information to people as they prepare and file their 2014 federal income tax return (which is due to the Internal Revenue Service (IRS) by April 15, 2015).