The IRS recently finalized rules and guidance that change how an employee’s family determines premium tax credit (PTC) eligibility for Exchange coverage beginning January 1, 2023, fixing what is commonly referred to as the “family glitch”. While it is expected that these rules will be well received by many employees and their families, PLEASE NOTE THAT THESE RULES DO NOT AFFECT EMPLOYER AFFORDABILITY OBLIGATIONS IN ANY WAY RELATING TO 4980H EMPLOYER SHARED RESPONBILITY PENALTIES.
SUMMARY: Initially, whether family members were able to obtain subsidized coverage through the Marketplace(s) was based on whether the employee’s own coverage was considered affordable under the ACA. Now, family member’s eligibility for subsidized coverage will be determined by whether the employee’s family coverage is considered Affordable; thus, allowing more families to obtain subsidized coverage. Remember, this does not mean employers are subject to penalty if the family plan is considered unaffordable.
For a more in-depth analysis, please keep reading:
- Family Member PTC Eligibility Based on Separate Affordability and Minimum Value Tests: An employee’s family members will now determine whether employer coverage is affordable for them impacting their eligibility to receive a PTC based on the employee portion of the premium for family coverage, instead of employee-only coverage. These rules also establish a separate minimum value rule for the employee’s family. Thus, if the offer of coverage does not provide minimum value to the employee’s family or if the employee’s required contribution for family coverage exceeds an indexed 9.5 percent of household income, the employee’s family is eligible for a PTC for Exchange coverage beginning January 1, 2023.
- 4980H Liability and Health Coverage Reporting Remains Unchanged: These rules only impact when an employee’s family is eligible for a PTC and do not impact the administration of Section 4980H employer shared responsibility penalties against applicable large employers (ALEs). ALEs should not have any additional 4980H liability if an employee’s family qualifies for PTCs under these new rules. Further, the IRS clarified that no changes to health coverage reporting using Forms 1095-B or 1095-C will result from this new rule.
- Affordability Test for ICHRAs and QSHERAs Remains Unchanged: For employees offered coverage under a qualified small employer HRA (QSHERA) or individual coverage HRA (ICHRA), the affordability test for determining PTC eligibility of family members is not impacted by these final rules and remains unchanged. The QSHERA PTC eligibility rules are prescribed by statute and would require legislative change before any PTC eligibility change could be made. However, the IRS indicated a willingness to consider future changes to the ICHRA rules. For now, if the ICHRA offer provides coverage for an employee’s family members, the affordability test used to determine PTC eligibility for those family members is still determined in reference to the employee’s share of the premium for self-only coverage for the lowest cost silver plan offered in the Exchange for the rating area in which the employee resides.
- Non-Calendar Year Cafeteria Plans Require Amendment: An employer sponsoring a non-calendar year cafeteria plan, who wants to allow participants to revoke current plan year elections for family coverage to take advantage of the expanded eligibility for PTCs for their family members, must amend their cafeteria plan as set forth in Notice 2022-41. Under this guidance, an employee can prospectively revoke an election for family coverage under a group health plan that is not a health FSA and provides minimum essential coverage under the following conditions: (1) one or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan (QHP), or one or more already-covered related individuals seeks to enroll in a QHP during the Exchange’s annual open enrollment period; and (2) the election change corresponds to the intended QHP enrollment of the related individual(s) for new coverage beginning on the first day after the revoked coverage under the employer’s plan ends. Plans may rely on the employee’s reasonable representation regarding QHP enrollment. For plan years beginning in 2023, amendments must be adopted on or before the last day of the plan year beginning in 2024. Going forward, plans must adopt such an amendment on or before the last day of the plan year in which the changes are allowed and may be effective retroactive to the first day of the plan year.
- Employee Notification Recommended but not Required: The preamble to the finalized rules confirm that employers do not have any specific employee disclosure or notification requirements as result of these rules. However, the comments also reflect a concern about the potential for significant confusion among employees trying to navigate the impact of these changes for their individual situation. While we will wait to see if the Department of Labor will amend the current Exchange notice that employers must provide to all new hires to reflect the latest changes to PTC eligibility, employers should anticipate that some employee education may be required as employees navigate the impact of these changes for their families and consider their health coverage options.
The final rules resulted from the IRS revising how it interpreted certain portions of the ACA that address when employees and related individuals are eligible for a PTC. Much of the preamble includes the legal justification for the change in its interpretation and could be an indication that the IRS expects litigation challenging the application of these rules. We will continue to monitor for any such challenges and keep you apprised of the latest developments.
Elizabeth Raggio, JD