The Internal Revenue Service (IRS) and Department of the Treasury recently issued a final rule that, among other noted clarifications, fixes the “ACA family glitch.” The final rules, which mostly went into effect January 1, 2023, allow the premium tax credit for family coverage on the federal health insurance marketplace or state exchange to be based on an employee’s cost of family coverage under a employer health plan, rather than the cost of employee-only coverage. This means that family members who are offered unaffordable job-based family coverage will be newly eligible for subsidized marketplace coverage. This change may have an impact on health plans. Here’s what to expect:
What is the ACA Family Glitch?
The ACA family glitch is a term that describes an interpretation of the Affordable Care Act that based a family’s eligibility for a premium tax subsidy for an exchange-based plan on the cost of employee-only coverage that is offered by an employer-sponsored plan. This generally means that individuals will not qualify for premium tax credits if they are eligible for another source of minimum essential coverage, including job-based coverage. As a result of this guideline, family members were not eligible for the premium tax credit if the employee-only coverage offered by the employer was affordable. The ACA family glitch was a “glitch” because eligibility hinged on the affordability of an employee-only plan, even if the cost of family coverage was not affordable.
The New Rules
Family Affordability
The final rule states that the affordability test for family members is based on the cost of family (rather than employee-only) coverage, and the effect is that families who are offered unaffordable job-based family coverage can now be eligible for a premium tax credit for marketplace plans. For 2023, an offer of job-based coverage is considered “affordable” for family members if the portion of the annual premium that an employee must pay for family coverage is less than 9.12% of household income. For purposes of affordability, family members are those within the employee’s tax family (employee, spouse filing jointly, or a dependent). Basing the eligible threshold of affordability on the cost of family coverage in order to determine eligibility of a premium tax credit for coverage obtained on the ACA marketplace exchange, fixes the ACA family glitch.
The final rule does not impact the affordability coverage for the employees themselves. Employees that are offered affordable coverage from their employer are still not be eligible for marketplace subsidies.
What Does Fixing the ACA Family Glitch Mean for the Future?
Group health plan sponsors should consider the potential implications of the Family Glitch change. A quick list of the potential impacts are as follows:
- No Change to the Employer Shared Responsibility Penalty – Under the ACA employer mandate, applicable large employers (employers with at least 50 full-time or full-time equivalent employees) must offer minimum essential coverage that is affordable and meets minimum value. However, there is no penalty imposed if the family member receives a premium tax credit towards coverage obtained on the marketplace.
- No impact on safe harbors or employer reporting – The final rule did not change any ACA reporting requirements for employers, including the reporting required on forms 1095-B and 1095-C. Additionally, the safe harbors available to determine affordability for purposes of the employer shared responsibility (play or pay penalty tax) remain unchanged.
- Potential migration to coverage found on the exchange – With new access to subsidized premiums, family members of employees may find that health insurance obtained on the exchange is less expensive than the cost of enrolling in employer-sponsored family coverage. Though not required, an employer may – at its discretion – modify its cafeteria plan to allow for a mid-year election change by the employee to drop a spouse or dependent from coverage, if such family member is newly eligible to receive subsidized coverage through the Marketplace.
Compliance Doesn’t Have to be Complicated
From the ACA family glitch to changes to the SCA fringe rate, new regulations and updates are frequently introduced that make healthcare and benefits administration a challenge. Boon is here to help. We offer our clients an expert in their corner with 40+ years of niche expertise in developing flexible benefit solutions and administrative services.
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