By Christy Abend
The Biden Administration recently issued a proposed rule aimed at eliminating a discrepancy known as the “family glitch” within the Affordable Care Act (ACA). If the new proposed rule passes, starting in 2023, affordability and eligibility for Premium Subsidies will be calculated not only by an individual’s premium cost, but also the cost of their dependents’ coverage. If finalized, employers will likely need to provide additional information on Form 1095-C regarding employees’ share of premiums, specifically, what the cost is for tiers within the lowest cost plans that include dependents.
Marketplace healthcare premium subsidies are provided to individuals based on their income or when their employer’s insurance is deemed unaffordable or does not meet the definition of Minimum Essential Coverage, or Minimum Value. If an Applicable Large Employer (ALE) requires an employee to spend more than 9.63% (for Tax Year 2022) of his or her household income on the ‘self-only’ tier of an employer’s lowest cost health plan, the plan is considered unaffordable under the Affordable Care Act.
While affordability determinations are based on self-only coverage, the cost to cover premiums for family members is typically much higher than the self-only tier. Employees seeking to secure health insurance for their family, therefore, may not qualify for a premium subsidy from the exchange and, as a result, may need to pay far more for the healthcare of their family.
This affordability discrepancy is called the “family glitch” and is inconsistent with the ACA’s intent to expand affordable health coverage to as many US citizens and nationals as possible.
If the new proposed rule passes, individuals who have to pay more than 9.63% (for Tax Year 2022) of their household income for coverage also offered to dependents will qualify to receive financial help in the form of marketplace premium subsidies.
If finalized, the proposed rule is expected to require additional collection and reporting of data for coverage offered to dependents beginning with Tax Year 2023. IRS Form 1095 could be modified to require separate affordability reporting regarding both employee-only coverage and other coverage offers.²
If finalized, and employers fail to comply with this new reporting requirement, they could be subjected to IRC § 6721 and 6722 penalties.
The good news for employers is that the proposed rule doesn’t mean that employers will face additional 4980H(a) and (b) penalty risk. As proposed, 4980H penalties will continue to be based on whether or not employers are offering coverage to 95% of qualifying employees, as well as self-only coverage meeting affordability rules. In summary, there would be no penalty risk to employers for not offering affordable coverage to family members. The new proposed rule just makes the Premium Tax Credit available to those family members who aren’t offered affordable employer-sponsored coverage.
Only members of the “tax family” are considered when determining the cost of health insurance coverage for family members (i.e., spouse and dependent children). For example, if children up to age 26 are offered coverage by the employer, but those adult children are not reported on the employee’s income tax return because they don’t qualify as dependents, the cost of covering those adult children is not considered in determining whether the employee’s family members have an offer of affordable employer coverage (regardless of whether the non-tax family member enrolls in the coverage).
A public hearing³ on the new proposed rule is scheduled for June 27, 2022, at 10 a.m. EDT. As the situation plays out, rest assured that we are listening in and will keep our customers informed each step of the way.
Keeping up-to-date with changing requirements around the Affordable Care Act can be challenging. Equifax Workforce Solutions has subject matter experts who can help you better manage your ACA efforts, including helping with calculating affordability, employee eligibility, tracking offers of coverage, reporting, and more. For more information about the ACA and measuring affordability , visit our ACA Management page and check out our guide, ACA Penalties and What They Could Mean for Your Company.
Citation(s)/Source(s)
https://www.kff.org/health-reform/issue-brief/the-aca-family-glitch-and-affordability-of-employer-coverage/ accessed April 13, 2022
https://www.natlawreview.com/article/do-employers-now-have-to-offer-affordable-family-coverage accessed April 13, 2022
Affordability of Employer Coverage for Family Members of Employees, Department of Treasury, 2022-07158, https://public-inspection.federalregister.gov/2022-07158.pdf
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About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.