“Family glitch” regulations pose new challenges for employers, employees
Under current ACA policy, people who seek to purchase their medical coverage on the Marketplace are provided tax subsidies to help with the cost if they meet certain criteria. One of those criteria is that they do not have access to affordable minimum essential coverage elsewhere – usually employer sponsored coverage. Currently, when you offer your employees coverage deemed “affordable” based on the individual rate, members of your employee’s household are barred from receiving a tax credit to purchase Marketplace coverage. As a result, family members of workers — usually low-income workers — are ineligible to receive premium tax credits through the Marketplace even when family coverage is unaffordable.
The proposed rules would allow for subsidies for those family members if the family coverage you offer costs more than 9.61%* of household income. While this seems straightforward, there are a number of open questions created by this proposed rule change:
- You will still only be required to make employee-only coverage “affordable” per the employer mandate provision.
- Reporting changes – and challenges – lie ahead; currently you are only required to report one type of coverage (employee-only) and the associated cost.
- Adult children who are still covered under a parent’s plan but are no longer tax dependents will be left out of the ACA subsidies for the household members.
- Marketplace applications currently only ask for the cost of employee-only coverage – this requirement will have to be updated to reflect the lowest cost for the family member seeking a subsidy. Spouses and children of the employee may have to report different costs if you offer coverage with multi-tiered rates.
- You may face a yet unknown change to your risk pool if your employees’ family members elect to take a premium tax credit to purchase coverage from the Marketplace.
- Families may end up purchasing two policies – one for the employee and another for the family members – resulting in having to meet two deductibles, two different out of pocket limits and potentially two different provider networks
The proposed rule changes are open for comment for 60 days. Comments will then be reviewed and potential changes adopted. The target date to finalize the new rule is by the end of 2022, meaning the new rule would go into effect for the 2023 tax year. Stay tuned for additional information and considerations.
This blog is up to date as of April 2022 and has not been updated for changes in the law, administration or current events.