New Healthcare Legislation Provides Tax Exclusion for Tribal Health Benefits

Kathleen Nilles is a Partner and Telly Meier is an Associate in our Washington D.C. office.

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). One week later, on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act, which amends certain PPACA provisions, such as lessening the effects of an excise tax on high-cost insurance plans.

PPACA requires individuals, with some exceptions, to have health insurance beginning in 2014. Those individuals who do not have coverage will be required to pay a yearly financial penalty. The penalty will be phased in between 2014 and 2016. The full penalty will be the greater of $695 per individual ($2,085 per family), or 2.5 percent of household income. However, section 1501(e)(3) of PPACA provides that individuals who are members of an Indian tribe are not subject to the penalty if they do not have insurance coverage.

In addition, section 9021 of PPACA adds a new section 139D to the Internal Revenue Code (Code). This new Code section excludes from gross income the value of Indian health care benefits. The exclusion applies to the value of:

health services or benefits provided or purchased by the Indian Health Service (IHS), either directly or indirectly, through a grant to or a contract with an Indian tribe or tribal organization or through programs of third parties funded by the IHS medical care (in the form of provided or purchased medical care services, accident or health insurance or an arrangement having the same effect, or amounts paid directly or indirectly to reimburse the member for expenses incurred for medical care) provided by an Indian tribe or tribal organization to a member of an Indian tribe, including the member's spouse or dependents accident or health plan coverage (or an arrangement having the same effect) provided by an Indian tribe or tribal organization for medical care to a member of an Indian tribe, including the member's spouses or dependents any other medical care provided by an Indian tribe or tribal organization that supplements, replaces or substitutes for the programs and services provided by the federal government to Indian tribes or Indians For purposes of section 139D, the term "medical care" generally includes amounts paid for the diagnosis, cure, mitigation, treatment, prevention of disease, or for the purpose of affecting any structure or function of the body, as well as...