Code Section 35

Code Section	Effective Date	Name of Act	Name of Provision	10yr Revenue Estimate ($millions)
35, 4980B, 7527, 9801	2/12/2011	Revenue Provisions of the Trade Adjustment Assistance Extension Act of 2011	Health Coverage Improvements	102
35 and 7527	12/31/2010	The Omnibus Trade Act of 2010	Extension of Health Coverage Tax Credit Improvements	-31
35, 4980B, 7527, 9801	*2/17/2009	The American Recovery and Reinvestment Act of 2009 (Public Law 111-5)	Modify the Health Coverage Tax Credit	-457

* Note on Effective Date

2/17/2009 Except where noted

Health Coverage Improvements

Explanation of Provision

The Act extends the temporary changes to the HCTC and related provisions so that the changes generally apply also to months beginning (or, for certain provisions, plan years beginning or events occurring) after February 12, 2011 and before January 1, 2014.¹³⁰ For months beginning after February 12, 2011, and before January 1, 2014, the credit rate is 72.5 percent. The HCTC is terminated for months beginning after December 31, 2013.

Extension of Health Coverage Tax Credit Improvements

Explanation of Provision

Sections 111 through 118 of the Omnibus Trade Act of 2010 extends the temporary changes to the HCTC and related provisions made by ARRA so that the ARRA changes also apply to generally months beginning (or, for certain provisions, plan years beginning or events occurring) after December 31, 2010 and before February 13, 2011.¹⁹⁴²

Modify the Health Coverage Tax Credit

Explanation of Provision ²⁸⁰

Increase in credit percentage amount
Payment for monthly premiums paid prior to commencement of advance payment of credit
TAA recipients not enrolled in training programs eligible for credit
TAA pre-certification period rule for purposes of determining whether there is a 63-day lapse in creditable coverage
Continued qualification of family members after certain events
Alignment of COBRA coverage
Addition of coverage through voluntary employees’ beneficiary associations
Notice requirements
Survey and report on enhanced health coverage tax credit program
Other non-revenue provisions
GAO study

1. Increase in credit percentage amount

The provision increases the amount of the HCTC to 80 percent of the taxpayer’s premiums for qualified health insurance of the taxpayer and qualifying family members.

Effective date — The provision is effective for coverage months beginning on or after the first day of the first month beginning 60 days after date of enactment. The increased credit rate does not apply to months beginning after December 31, 2010.

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2. Payment for monthly premiums paid prior to commencement of advance payment of credit

The provision provides that the Secretary of the Treasury shall make one or more retroactive payments on behalf of certified individuals equal to 80 percent of the premiums for coverage of the taxpayer and qualifying family members for qualified health insurance for eligible coverage months occurring prior to the first month for which an advance payment is made on behalf of such individual. The amount of the payment must be reduced by the amount of any payment made to the taxpayer under a national emergency grant pursuant to section 173(f) of the Workforce Investment Act of 1998 for a taxable year including such eligible coverage months.

Effective date — The provision is effective for eligible coverage months beginning after December 31, 2008. The Secretary of the Treasury, however, is not required to make any payments under the provision until after the date that is six months after the date of enactment. The provision does not apply to months beginning after December 31, 2010.

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3. TAA recipients not enrolled in training programs eligible for credit

The provision modifies the definition of an eligible TAA recipient to eliminate the requirement that an individual be enrolled in training in the case of an individual receiving unemployment compensation. In addition, the provision clarifies that the definition of an eligible TAA recipient includes an individual who would be eligible to receive a trade readjustment allowance except that the individual is in a break in training that exceeds the period specified in section 233(e) of the Trade Act of 1974, but is within the period for receiving the allowance.

Effective date — The provision is effective for months beginning after the date of enactment in taxable years ending after such date. The provision does not apply to months beginning after December 31, 2010.

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4. TAA pre-certification period rule for purposes of determining whether there is a 63-day lapse in creditable coverage

Under the provision, in determining if there has been a 63-day lapse in coverage (which determines, in part, if the State-based consumer protections apply), in the case of a TAA-eligible individual, the period beginning on the date the individual has a TAA related loss of coverage and ending on the date which is seven days after the date of issuance by the Secretary (or by any person or entity designated by the Secretary) of a qualified health insurance costs credit eligibility certificate (under section 7527) for such individual is not taken into account.

Effective date — The provision is effective for plan years beginning after the date of enactment. The provision does not apply to plan years beginning after December 31, 2010.

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5. Continued qualification of family members after certain events

The provision provides continued eligibility for the credit for family members after certain events. The rule applies in the case of (1) the eligible individual becoming entitled to Medicare, (2) divorce, and (3) death.

In the case of a month which would be an eligible coverage month with respect to an eligible individual except that the individual is entitled to benefits under Medicare Part A or enrolled in Medicare Part B, the month is treated as an eligible coverage month with respect to the individual solely for purposes of determining the amount of the credit with respect to qualifying family members (i.e., the credit is allowed for expenses paid for qualifying family members after the eligible individual is eligible for Medicare). Such treatment applies only with respect to the first 24 months after the eligible individual is first entitled to benefits under Medicare Part A or enrolled in Medicare Part B.

In the case of the finalization of a divorce between an eligible individual and the individual’s spouse, the spouse is treated as an eligible individual for a period of 24 months beginning with the date of the finalization of the divorce. Under such rule, the only family members that may be taken into account with respect to the spouse as qualifying family members are those individuals who were qualifying family members immediately before such divorce finalization.

In the case of the death of an eligible individual, the spouse of such individual (determined at the time of death) is treated as an eligible individual for a period of 24 months beginning with the date of death. Under such rule, the only qualifying family members that may be taken into account with respect to the spouse are those individuals who were qualifying family members immediately before such death. In addition, any individual who was a qualifying family member of the decedent immediately before such death ²⁸¹ is treated as an eligible individual for a period of 24 months beginning with the date of death, except that in determining the amount of the HCTC only such qualifying family member may be taken into account.

Effective date — The provision is effective for months beginning after December 31, 2009. The provision does not apply to months that begin after December 31, 2010.

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6. Alignment of COBRA coverage

The maximum required COBRA continuation coverage period is modified by the provision with respect to certain individuals whose qualifying event is a termination of employment or a reduction in hours. First, in the case of such a qualifying event with respect to a covered employee who has a nonforfeitable right to a benefit any portion of which is paid by the PBGC, the maximum coverage period must end not earlier than the date of death of the covered employee (or in the case of the surviving spouse or dependent children of the covered employee, not earlier than 24 months after the date of death of the covered employee). Second, in the case of such a qualifying event where the covered employee is a TAA eligible individual as of the date that the maximum coverage period would otherwise terminate, the maximum coverage period must extend during the period that the individual is a TAA eligible individual.

Effective date — The provision is effective for periods of coverage that would, without regard to the provision, end on or after the date of enactment, provided that the provision does not extend any periods of coverage beyond December 31, 2010.

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7. Addition of coverage through voluntary employees’ beneficiary associations

The provision expands the definition of qualified health insurance by including coverage under an employee benefit plan funded by a voluntary employees’ beneficiary association (‘‘VEBA,’’ as defined in section 501(c)(9)) established pursuant to an order of a bankruptcy court, or by agreement with an authorized representative, as provided in section 1114 of title 11, United States Code.

Effective date — The provision is effective on the date of enactment. The provision does not apply with respect to certificates of eligibility issued after December 31, 2010.

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8. Notice requirements

The provision requires that the qualified health insurance costs credit eligibility certificate provided in connection with the advance payment of the HCTC must include (1) the name, address, and telephone number of the State office or offices responsible for providing the individual with assistance with enrollment in qualified health insurance, (2) a list of coverage options that are treated as qualified health insurance by the State in which the individual resides, (3) in the case of a TAA-eligible individual, a statement informing the individual that the individual has 63 days from the date that is seven days after the issuance of such certificate to enroll in such insurance without a lapse in creditable coverage, and (4) such other information as the Secretary may provide.

Effective date — The provision is effective for certificates issued after the date that is six months after the date of enactment. The provision does not apply to months beginning after December 31, 2010.

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9. Survey and report on enhanced health coverage tax credit program

Survey
The provision requires that the Secretary of the Treasury must conduct a biennial survey of eligible individuals containing the following information:

In the case of eligible individuals receiving the HCTC (including those participating in the advance payment program (the ‘‘HCTC program’’)) (A) demographic information of such individuals, including income and education levels, (B) satisfaction of such individuals with the enrollment process in the HCTC program, (C) satisfaction of such individuals with available health coverage options under the credit, including level of premiums, benefits, deductibles, cost-sharing requirements, and the adequacy of provider networks, and (D) any other information that the Secretary determines is appropriate.
In the case of eligible individuals not receiving the HCTC (A) demographic information on each individual, including income and education levels, (B) whether the individual was aware of the HCTC or the HCTC program, (C) the reasons the individual has not enrolled in the HCTC program, including whether such reasons include the burden of process of enrollment and the affordability of coverage, (D) whether the individual has health insurance coverage, and, if so, the source of such coverage, and (E) any other information that the Secretary determines is appropriate.

Not later than December 31 of each year in which a survey described above is conducted (beginning in 2010), the Secretary of the Treasury must report to the Committee on Finance and the Committee on Health, Education, Labor, and Pensions of the Senate and the Committee on Ways and Means and the Committee on Education and Labor of the House of Representatives the findings of the most recent survey.

Report
Not later than October 1 of each year (beginning in 2010), the Secretary of the Treasury must report to the Committee on Finance and the Committee on Health, Education, Labor, and Pensions of the Senate and the Committee on Ways and Means and the Committee on Education and Labor of the House of Representatives the following information with respect to the most recent taxable year ending before such date:

In each State and nationally (A) the total number of eligible individuals and the number of eligible individuals receiving the HCTC, (B) the total number of such eligible individuals who receive an advance payment of the HCTC through the HCTC program, (C) the average length of the time period of participation of eligible individuals in the HCTC program, and (D) the total number of participating eligible individuals in the HCTC program who are enrolled in each category of qualified health insurance with respect to each category of eligible individuals.
In each State and nationality, an analysis of (A) the range of monthly health insurance premiums, for self-only coverage and for family coverage, for individuals receiving the benefit of the HCTC and (B) the average and median monthly health insurance premiums, for self-only coverage and for family coverage, for individuals receiving the HCTC with respect to each category of qualified health insurance.
In each State and nationally, an analysis of the following information with respect to the health insurance coverage of individuals receiving the HCTC who are enrolled in Statebased coverage: (A) deductible amounts, (B) other out-of-pocket cost-sharing amounts, and (C) a description of any annual or lifetime limits on coverage or any other significant limits on coverage services or benefits. The information must be reported with respect to each category of coverage.
In each State and nationally, the gender and average age of eligible individuals who receive the HCTC in each category of qualified health insurance with respect to each category of eligible individuals.
The steps taken by the Secretary of the Treasury to increase the participation rates in the HCTC program among eligible individuals, including outreach and enrollment activities.
The cost of administering the HCTC program by function, including the cost of subcontractors, and recommendations on ways to reduce the administrative costs, including recommended
statutory changes.
After consultation with the Secretary of Labor, the number of States applying for and receiving national emergency grants under section 173(f) of the Workforce Investment Act of 1998, the activities funded by such grants on a State-by-State basis, and the time necessary for application approval of such grants.

10. Other non-revenue provisions

The provision also authorizes appropriations for implementation of the revenue provisions of the provision and provides grants under the Workforce Investment Act of 1998 for purposes related to the HCTC.

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11. GAO Study

The provision requires the Comptroller General of the United States to conduct a study regarding the HCTC to be submitted to Congress no later than March 31, 2010. The study is to include an analysis of (1) the administrative costs of the Federal government with respect to the credit and the advance payment of the credit and of providers of qualified health insurance with respect to providing such insurance to eligible individuals and their families, (2) the health status and relative risk status of eligible individuals and qualified family members covered under such insurance, (3) participation in the credit and the advance payment of the credit by eligible individuals and their qualifying family members, including the reasons why such individuals did or did not participate and the effects of the provision on participation, and (4) the extent to which eligible individuals and their qualifying family members obtained health insurance other than qualifying insurance or went without insurance coverage. The provision provides the Comptroller General access to the records within the possession or control of providers of qualified health insurance if determined relevant to the study. The Comptroller General may not disclose the identity of any provider of qualified health insurance or eligible individual in making information available to the public.

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130- Special transition rules apply with respect to the extension of certain provisions.
-Return to Explanation of Provision

280- The provision was subsequently amended by sections 111–118 of the Omnibus Trade Act of 2010, Pub. L. No. 111–344, described in Part Eighteen of this document.
-Return to Explanation of Provision

281- In the case of a dependent, the rule applies to the taxpayer to whom the personal exemption deduction under section 151 is allowable.
-Return to Explanation of Provision

1942- The expansion of the definition of qualified health insurance to include coverage under an employee benefit plan funded by certain VEBAs is extended to apply to months beginning before February 13, 2012.
-Return to Explanation of Provision

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