New Regulations Proposed to Fix ACA’s “Family Glitch” in Effort to Lower Healthcare Costs for Family Coverage
On April 5, 2022, the Department of Treasury and the IRS issued a proposed rule with the goal of revising the existing interpretation regarding eligibility for premium tax credits for families. Often referred to as the Affordable Care Act’s “family glitch”, the new rule if finalized would extend ACA marketplace subsidies to millions more people for whom coverage was previously considered out of reach. In conjunction with the proposed rule, the Biden Administration also released a Fact Sheet summarizing its efforts to further bolster the ACA and Medicaid.
Summary: The rule will add a minimum value rule for family members based on the cost of benefits provided to the family, so that if the family coverage proves not to be affordable, the family members can qualify for the premium tax credit (PTC) on the Marketplace Exchanges.
The new Proposed Regs leave existing employee-only affordability rules untouched and do not change the Employer Shared Responsibility ‘play or pay’ rules under Section 4980H(a) or (b). In other words, the new rules do not require that employers provide ‘affordable’ coverage to family members.
Current Regulations hinge affordability on employee-only coverage as compared to the employee’s household income. As long as the employer’s employee-only coverage premium cost is less than 9.61% (for 2022) of household income, then the coverage – including family coverage- is considered ‘affordable’. Because the coverage is ‘affordable’, then each member of the family (employee + related individuals) is no longer eligible for the premium tax credit (PTC) provided through the Federal/State Exchange (“Exchange”).
New Proposed Regulations update the rule to add a new affordability measurement for family members. Specifically, an employer-sponsored plan is affordable for ‘related individuals’ only if the employee’s required contribution percentage is less than 9.61% of the household income. (household income as related to the portion of annual premium the employee must pay for coverage of the employee and all other individuals included in the employee’s family.) If the employer’s group health plan expense for family coverage (including employee+spouse and employee+dependents) does not fall within the 9.61%, then such coverage is deemed to not be ‘affordable’ for those related individuals. As a result, those related individuals will newly become eligible for a PTC.
Proposed Regs would be effective for Plan years beginning on and after 1/1/2023. The Exchanges would need to be updated to ensure that the websites can accommodate the changes for open enrollment 2023.
Possible Result:
- Update to Form 1095 to add an additional affordability tier for ‘related individual’ affordability
- Possibility for employers see an increase in self-only coverage (reduction of family coverage), because the families can move to the exchange.
Additional Notes:
- Proposed regulation doesn’t mention any additional requirement/penalty for employer to offer affordability to family members/related individuals. Focus of proposed regulation is only for the family to have access to PTC.
- But, Employers and Plan Sponsors should engage their HR staff, Finance teams, and their broker consultants to re-confirm their plan/contribution (payroll deduction) “pricing” to avoid adverse selection in the other tiers (EE + Spouse, EE +Child(ren), and Family)
- An adult child that is covered by the employee plan (up to age 26) that does not otherwise qualify as a ‘tax dependent’, cannot be included as a ‘related individual’ that would gain access to a PTC.
- Clarifies that the family member’s coverage under employee’s employer plan to be considered minimum value, the plan must MV percentage must be at least 60% based on the share of the total allowed costs of benefits provided to the related individuals and provide ‘substantial’ inpatient hospital/physician services (as is required for the employee coverage)
- Clarifies that the calculation of the premium assistance amount must only relate to the refunds within the same taxable year. [When computing the premium assistance amount for a coverage month, a taxpayer’s enrollment premiums for the month are the premiums for the month reduced by any amount that was refunded in the same taxable year that the taxpayer incurred the premium liability and is not affected by a premium refund that was paid in a later taxable year].
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