Affordability of Employer Coverage for Family Members of Employees – Fixing the “Family Glitch”

Employee Benefits

Affordability of Employer Coverage for Family Members of Employees – Fixing the “Family Glitch”

Background

Under previous rules, a premium tax credit (PTC)1 was only available to an employee and their family members (termed “related individuals” in the final regulations) if the employee’s contribution towards employee-only coverage offered by an employer group health plan was considered “unaffordable” under the Employer Mandate. This meant that so long as an employee’s cost for employee-only coverage was considered “affordable” under the Employer Mandate, and regardless of the expense of family coverage (e.g., employee plus spouse/ dependent child) to the employee, the employee and family members could not receive a PTC.

The IRS recently released two important sets of guidance resolving the above “Family Glitch” that existed under the ACA’s employer shared responsibility penalty (Employer Mandate) rules. The two sets of IRS guidance provide for the ability of family members to now receive a PTC if employersponsored family coverage is considered “unaffordable” to the employee and also allow an employee to make a midyear election change in a Section 125 cafeteria plan to allow family members to enroll in exchange/marketplace coverage.

Premium Tax Credits for Family Members

On October 13, 2022, the IRS published final regulations regarding the eligibility for premium tax credits (PTC) for an employee’s family members. As noted in our previous article discussing the proposed regulations, the regulations aim to fix what has been referred to as the ACA’s “Family Glitch.” The new rules adopted by the IRS on October 13th, 2022, expand the ability for an employee’s family members to receive a marketplace PTC if an employee’s cost for family coverage under an employer’s health plan is considered “unaffordable” to the family members, even if the plan’s employee-only coverage is considered affordable to the employee. The final regulations apply to taxable years beginning after December 31, 2022.

Affordability Rule

The final regulations resolving the “Family Glitch” implement the proposed regulations with no significant changes. Under the final regulations, employer-sponsored coverage for certain spouses and dependents (i.e., family members) is considered affordable for PTC purposes if the employee’s annual cost of family coverage does not exceed 9.5% (indexed for inflation each year) of the employee’s household income.

Minimum Value Rule

The affordability of family coverage will be based on the lowest-cost Minimum Value plan offered by the employer. This is to ensure that the affordable coverage offered by an employer meets a minimum standard. The final regulations state that “an eligible employer-sponsored plan provides minimum value for related individuals only if the plan’s share of the total allowed costs of benefits provided to related individuals is at least 60% and the plan benefits include substantial coverage of inpatient hospital services and physician services.”

1 A premium tax credit is used to reduce an individual’s cost for coverage within a state’s or the federal exchange/marketplace.

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