The IRS issued a proposed rule which, if finalized, would change eligibility for the premium tax credit when purchasing coverage through the Marketplace. The new determination for eligibility will be based on affordability of employer-provided coverage to family members and not just to the employee. This change will extend premium tax credit subsidies to many people who were not otherwise eligible for financial assistance.
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%. Likewise, employer coverage is unaffordable for an employee’s family members based on the employee’s share of the premium for self-only coverage (not family coverage).
Individuals generally are not allowed a premium tax credit to purchase coverage in the Marketplace if they are eligible for employer coverage. However, individuals are not considered to be eligible for employer coverage if the coverage is unaffordable or does not provide minimum value, unless they enroll in the coverage. Coverage is not affordable for an employee if the portion of the premiums required to be paid by the employee for self-only coverage exceeds 9.5% (as adjusted) of household income. The current rules provide that if self-only employer coverage is affordable for an employee, then the coverage is also affordable for a spouse with whom the employee is filing a joint return and any dependents of the employee who may be eligible to enroll in the employer coverage, regardless of the amount the employee must pay to cover the spouse and dependents.
The new proposed regulations create a separate affordability determination for employees and for family members for premium tax credit eligibility. Under the proposed 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.
The proposed 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. Therefore, under the proposed regulations, 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 proposed regulations also address the minimum value rule. 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 proposed 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 proposed regulations are slated to be finalized by the end of this year with changes implemented for 2023 Marketplace coverage enrollment.
At this time, it is not clear if the proposed rules will impact the employer mandate to provide affordable coverage to employees. The employer mandate requires applicable large employers to offer affordable coverage to employees and dependents, but penalties for violating the employer mandate come into play when an employee receives a tax credit to purchase coverage through the Marketplace. The penalty is not triggered by a family member’s purchase of subsidized coverage. Even so, employers may anticipate future changes in the affordability requirements.
A copy of the proposed rule may be accessed by clicking here.
