Relatively unchanged from the proposed rule, the final rule addressing “the family glitch,” which determines an “affordable” health plan based on self-only coverage, maintains that the rule will not impact employers' reporting requirements or employees’ coverage. HR Policy requested clarification on this issue in our comments to the IRS.
Background: Under the 2013 IRS interpretation of the ACA, eligibility for premium tax credits for an employee and family hinges on whether the employee has an “affordable” offer of coverage from their employer. However, this affordability test is determined by self-only coverage, even if the employer’s offer of family coverage exceeds that threshold. This is known as the “family glitch” and prevents an estimated 5 million people from qualifying for federal subsidies to purchase coverage in the ACA exchanges. In 2022, a plan is considered “affordable” when self-only coverage does not exceed 9.6% of the employee’s income.
The final rule does not impact employer liability. Employer mandate penalties are only triggered when an employee receives a premium tax credit through the marketplace. The final rule only extends premium tax credits to family members of the employee, so the eligibility of the employee is not impacted by the rule. Several examples are included in the final rule on how the IRS will evaluate family coverage. For example, in cases where an employee’s family coverage is not affordable, but the employee’s spouse has an offer of affordable coverage from their own employer, the IRS will treat the spouse as having an offer of affordable coverage and ineligible for ACA subsidies.
The rule also confirmed that an employer’s plan is not of “minimum value” if it fails to cover at least 60% of total allowed costs.
Outlook: The final rule goes into effect for the 2023 tax year, meaning federal and state marketplaces will implement the changes ahead of the 2023 open enrollment period beginning November 1. The rule also states the IRS will develop resources for employers to use to understand the impact of multiple family members on different plans.