IRS Changes Affordability Determination for Family Coverage

Posted by BAS - 17 November, 2022

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The IRS issued final regulations changing the affordability test for purposes of receiving a tax credit for purchasing health coverage through the Marketplace. Eligibility for a premium tax credit now considers the cost of employer health coverage for family members and not just the cost to an employee. This change is intended to fix the so-called “family glitch” and will result in people receiving premium tax credit subsidies who were not eligible for financial assistance previously. The final regulations do not change the calculation of affordability for employer-offered coverage.

An Applicable Large Employer must offer its full-time employees minimum essential coverage that is affordable and provides minimum value. Health coverage is considered affordable if the employee’s share of the annual premium for the lowest-cost self-only coverage is 9.5% or less of the employee’s household income. In 2022, the affordability percentage is adjusted to 9.61%. In 2023, the percentage will be adjusted to 9.12%.

The new regulations address a “glitch” in using the affordability determination for receiving tax assistance to purchase coverage from the Marketplace. Before this new rule, the Marketplace did not take into account the cost of employer-provided family coverage when determining if an individual was entitled to a tax credit. Instead, the Exchange considered only the employee’s share of the premium for self-only coverage for all family members.

The new regulations create a separate affordability determination for employees and for family members that is used to determine the individual’s eligibility for a premium tax credit. Under the new rules, the affordability of employer coverage for related individuals in the employee’s family will be determined based on the cost of covering the employee and family members. An employer plan will be considered affordable for related individuals if the employee’s required contribution for family coverage does not exceed 9.5 percent of household income (as adjusted each year).

The regulations make changes only to the affordability rule for related individuals; they do not change the affordability rule for employees. Employees continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income. This means a spouse or dependent of an employee may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage.

The new regulations also address the calculation of minimum value. An eligible employer-sponsored plan provides minimum value if the plan's share of the total allowed cost of benefits provided to an employee is at least 60 percent. The regulations expand the minimum value requirements to provide a similar minimum value rule for related individuals that is based on the level of coverage provided to related individuals under an employer-sponsored plan.

The regulations are effective for tax years beginning on or after December 31, 2022 which means they apply for 2023 Marketplace enrollment.

Topics: Company News, Health Care Reform (ACA), Affordable Care Act, HR & Benefits News


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