A new final rule issued by the IRS aims to make it less expensive for many spouses and dependents now covered under an employer-sponsored family health plan—or who are uninsured because family premiums are too expensive—to purchase coverage through the Affordable Care Act (ACA) marketplace.
The rule applies to coverage for the 2023 plan year, and so some employers may see a decline in requests for family coverage during the fall open enrollment season for next year’s health plan benefits.
The rule, “Affordability of Employer Coverage for Family Members of Employees,” was published in the Federal Register on Oct. 13. The final regulations adopt largely unchanged the proposed regulations that the IRS issued in April 2022.
The rule was accompanied by new cafeteria plan guidance in Notice 2022-41.
Ending the ‘Family Glitch’
The rule addressed what its supporters have called the “family glitch.” Under the ACA, employees and family members are not eligible for a premium tax credit to buy subsidized coverage on the ACA’s health insurance marketplaces if the employee has access to “affordable” health insurance through an employer—meaning, as adjusted for 2023, an offer of self-only coverage that does not exceed 9.12 percent of the employee’s income.
Current regulations, however, define employer-based health insurance as affordable if the coverage solely for the employee, and not for family members, is affordable, making family members with limited income ineligible for a premium tax credit for an ACA marketplace plan.
Starting in 2023, under the new rule, if coverage for the family as a whole costs more than 9.12 percent of household income under the lowest-cost employer-sponsored option, then the nonemployee family members will be eligible for financial assistance in the ACA marketplace.
Enhanced ACA Marketplace Subsidies
“Most of the rule goes into effect for the 2023 tax year, meaning family members who qualify can enroll in subsidized marketplace coverage for 2023,” wrote Katie Keith, director of the Health Policy and the Law Initiative at the O’Neill Institute for National and Global Health Law at Georgetown University, in a Health Affairs Forefront blog post.
“The family glitch fix comes at a time of record-high marketplace enrollment,” she noted, due in part to more-generous marketplace subsidies under an extension of the American Rescue Plan Act’s enhanced subsidies by the Inflation Reduction Act.
No Effect on Employer Mandate
The final rule will not affect liability under the employer mandate that requires large employers to offer coverage to employees and dependents, because “penalties for violating the mandate are triggered only when an employee receives premium tax credits through the marketplace.”
No Additional ACA Reporting
In the final rule, the IRS stated that “nothing in these final regulations affects any information reporting requirements for employers, including the reporting required on Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, respectively.”
The IRS further stated it “does not intend to revise Form 1095-B or Form 1095-C to require any additional data elements related to the new rules.”
Article Provided by SHRM