Earlier this year the IRS announced proposed regulations extending ACA affordability to other tiers of employer-sponsored group medical coverage (employee + child/spouse, family, etc.). Today the IRS released final regulations.
Previously, ACA affordability was based solely on the employee-only tier of coverage. If an employee was offered affordable, minimum-value coverage, the spouse and dependent children would not be eligible to purchase subsidized coverage on the exchange.
Under this new rule, if the family tier of coverage is not affordable, spouses and/or dependent children will now be eligible to purchase subsidized coverage on the exchange, provided they don’t have their own offer of affordable coverage.
EMPLOYERS ARE NOT EXPOSED TO NEW PENALTY RISKS
This change does not expose employers to new penalty risks since employer penalties are still based on whether the employee-only tier of coverage is affordable.
If employee-only coverage is affordable, an employee cannot purchase subsidized coverage and will not trigger employer penalties. This is the case even if an employee needs family coverage and the family tier is not affordable.
- This change is effective January 1, 2023 regardless of the employer’s plan year – remember, since this doesn’t create new employer penalties, there is no additional risk for employers (other than possible decreases in enrollment).
- Affordability for the family tier is based on whether the employee contribution exceeds the applicable percentage of household income (9.61% for 2022 and 9.12% for 2023) – since employers don’t know household income they won’t have any insight into whether family members are eligible for subsidies unless the employee contribution towards family meets one of the existing safe harbors.
- The IRS announced a new qualifying event that will allow employees enrolled in family coverage that is not affordable to drop those family members mid-year so they may enroll in subsidized coverage through the exchange – this is a permitted election change, not a HIPAA Special Enrollment Right, therefore plans are not required to allow this change.
EXAMPLES ILLUSTRATING SUBSIDY ELIGIBILITY
Below are several examples illustrating subsidy eligibility based on offers of coverage. Assume S1 (Spouse 1) & S2 (Spouse 2) are married, and C (Child) is their 14-year-old child.
In the example in the second to the last row, S2 is not eligible for a subsidy even though the offer of coverage made by his/her employer is not affordable. S2 effectively loses his/her subsidy eligibility because the offer of family coverage by S1's employer is affordable.
In the final example, on the bottom row, assume C is 24 rather than 14 years of age. For purposes of affordability, family members only include children who are tax dependents. Unless C is still considered a tax dependent of S1 & S2, C would not be considered an eligible family member for purposes of affordability.
C’s subsidy eligibility would depend on whether they were offered affordable coverage by their own employer. This is the case even though C would be eligible for coverage under both S1’s and S2’s employer plans.
If you have any additional questions regarding ACA affordability and how this new IRS ruling impacts you as an employer, contact us. Our HUB Advisors, along with our Compliance Practice Leaders, will help you sort things out.
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