2 Critical Health Reform Considerations for American Indians, Alaska Natives, and Surrounding Businesses

 In Topics of Interest

This article was written by Tonya Rule, Tax Senior Manager, and Shawn Deluhery, Health Care Consulting Manager, with Eide Bailly LLP.

2 Critical Health Reform Considerations for American Indians, Alaska Natives, and Surrounding Businesses


The Affordable Care Act (ACA/health reform) includes some specific regulations for American Indians and Alaska Natives (American Indians) as well as for businesses employing American Indians. Since the ACA was passed in 2010 we have received many questions on how the ACA effects American Indians. This article outlines some key considerations.

ACA Implications Specifically for American Indians 

Included in the ACA is the individual mandate penalty imposed on taxpayers who do not enroll in health insurance during a given tax year (January – December). Included with the individual mandate is a large list of exceptions to the penalty. Two of these exceptions are specifically for American Indians.

Specifically the regulations state that an individual is exempt from the individual mandate penalty for any month in which he or she is a member of a federally-recognized Indian tribe1 for at least one day during a given month (Reg. 1.5000A-3(g)). A federally-recognized Indian tribe is any Indian tribe, band, nation, pueblo, or other organized group or community (including Alaskan Native Villages defined in the Alaska Native Claims Settlement Act (ANCSA)2) that is recognized as eligible for the special programs and services provided by the U.S. to American Indians because of their status as Indians (IRC Sec. 45A(c)). This exemption is claimed when the taxpayer files a federal income tax return when Part III of Form 89653 is completed putting in code E in column (c).

For American Indians and Alaska Natives not part of a federally-recognized Indian tribe, there is another exemption from the individual mandate penalty. Specifically a Native American who is eligible for services through an Indian Health Care Provider qualifies for an exemption (HHS Reg. 45 CFR 155.605(e)(3)). This includes an individual who is eligible for Indian Health Service (IHS), a tribal health facility, or an Urban Indian organization. Similar to the previous exemption, this is claimed when the individual files a federal income tax return by also completing Part III of Form 8965 using code E in column (c).

So in short, federally-recognized American Indians as well as not federally-recognized American Indians who receive services through IHS or an Indian health care provider qualify for an exemption from the individual mandate penalty by filing Part III of Form 8965 of the federal tax return.

Employer Pay or Play Penalties and Reporting Requirements

Many organizations which have American Indians on the payroll wonder if they can bypass offering health insurance to American Indians as many qualify for insurance through IHS. While this view has some logic to it, an applicable large employer (ALE)4 still has an ACA requirement to offer insurance to full time Native American employees or else the employer could face a pay or play penalty.

Here’s where a little ACA background on the employer pay or play penalty comes in handy. Similarly to the individual mandate penalty which imposes a monetary penalty on individuals who don’t enroll in health insurance and don’t qualify for an exemption, the ACA imposes monetary penalties on organizations who meet a given criteria. The first criteria is size. Small employers are excluded from any pay or play penalties. Applicable large employers (ALEs) is the ACA coined term of an organization that isn’t small enough to be completely excluded from penalty.

An ALE is any employer that employs at least 50 full time equivalent employees (full time + part time equivalents) over the course of the previous calendar year. The calculation to determine full time equivalent employees is specific and therefore employers who are close to 50 employees need to keep a close watch on whether or not they are considered an ALE.  Also keep in mind the definition of an ALE includes controlled groups (companies owned by the same owners, see specific regulations on these definitions).

An ALE not offering coverage or offers insurance to less than 95% of the company’s full time employees may find themselves facing the “pay” penalty which is $2,160 x the number of full time employees (less 30). The penalty is triggered on all full time employees.  If one full time employee goes to an exchange and receives a subsidy, including American Indian employees. Organizations offering coverage may find themselves paying the “play” penalty of $3,120 per full time employee who goes to the exchange and receives a subsidy. Again, this rule does apply to organizations that employ American Indians even though most American Indians qualify for IHS. Employers will want to make sure they are extending offers of coverage to all full time employees to eliminate risk of the pay penalty and make it affordable to reduce the risk of the play penalty.

ALEs also have reporting requirements to file to the IRS annually. The 1094-C and 1095-C forms are required to be filed each year to the IRS. These forms are used to provide offers and coverage information to the IRS that will be used to administer the pay or play penalties. Similarly to the recommendation to offer coverage to American Indians to reduce the risk of play or pay penalties, it’s recommended to provide full time Native American employees with a 1095-C.

In summary there are specific regulations for American Indians in the form of exclusions from the Individual Mandate. However those exclusions do not cross over into potential pay or play penalties nor into the ALE 1094-C and 1095-C reporting requirements.

Reach out to one of our health reform champions at 855.220.8634 with questions or for additional information.


1Click here for a list of federally-recognized Indian tribes

2Click here for a list of ANCSA villages or regional corporations

3Form 8965 Part III accompanies the Form 1040 (individual federal tax return)

4Applicable large employer (ALE): An employer which has at least 50 full time equivalent employees employed, see IRS regulations for specifics on calculating ALE status

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