In Notice 2020-66[1] the IRS provided that Medicaid coverage limited to COVID-19 testing and diagnostic services does not constitute minimum essential coverage. The issue is important in determining if a taxpayer qualifies for a premium tax credit under IRC §36B.

The Notice explains the interaction of minimum essential coverage and the premium tax credit:

Section 36B and § 1.36B-3(a) of the Income Tax Regulations provide that a taxpayer is allowed a premium tax credit only for months that are coverage months for individuals in the taxpayer’s family, as defined in § 1.36B-1(d). Under § 1.36B-3(c)(1)(ii), a coverage month for an individual includes only those months the individual is not eligible for minimum essential coverage, except coverage in the individual market.

Minimum essential coverage is defined in section 5000A(f) of the Code and generally includes coverage under government-sponsored programs, including Medicaid coverage under title XIX of the Social Security Act. However, the Treasury Department and the IRS have determined that certain health care coverage providing limited benefits is not minimum essential coverage under a government-sponsored program. See § 1.5000A-2(b)(2).[2]

Effective for tax years beginning in or after 2020, the Notice provides:

The Treasury Department and the IRS have determined that Medicaid coverage limited to COVID-19 testing and diagnostic services under section 6004(a)(3) of the Families First Act is not minimum essential coverage under a government-sponsored program. Thus, an individual’s eligibility for this coverage for one or more months does not prevent those months from qualifying as coverage months for purposes of determining eligibility for the premium tax credit under section 36B.[3]

[1] Notice 2020-66, September 9, 2020, https://www.irs.gov/pub/irs-drop/n-20-66.pdf (retrieved September 10, 2020)

[2] Notice 2020-66, Section 2

[3] Notice 2020-66, Section 3