The IRS has issued a proposal that would amend the existing Affordable Care Act (“ACA”) regulations regarding eligibility for the law’s premium tax credit (“PTC”) to provide that the affordability of employer-sponsored minimum essential coverage for family members of an employee is based on the family’s share of the cost of covering family members, and not just the cost of covering only the employee.
Law. Under the ACA, people who do not have access to “affordable” health insurance through their jobs may qualify for the PTC to help purchase coverage through the ACA’s health insurance Marketplaces. The ACA and its regulations currently provide that employer coverage is not affordable if the share of the annual premium the employee must pay for self-only coverage is more than the “required contribution percentage” of household income. The required contribution percentage is 9.5%, as indexed annually.
In addition, the ACA’s employer shared responsibility rules require Applicable Large Employers (“ALEs”) to offer affordable, minimum value health coverage to full-time employees or be subject to a penalty. Again, the ACA provides that an ALE’s coverage is affordable if the employee’s required contribution for self-only coverage does not exceed the required contribution percentage. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year (as indexed) for each full-time employee who receives a PTC through an Exchange. (For these purposes, the amount in Box 1 of Form W-2 can be substituted for household income.)
IRS Proposal. The IRS explains that “[f]or family members of an employee offered health coverage through an employer, the cost of that family coverage can sometimes be very expensive and make health insurance out of reach.” Therefore, the IRS is proposing to eliminate what it is calling a “family glitch.” Under the proposal, family members of an employee who is offered coverage that is affordable for the employee under self-only coverage but not affordable for the other family members under family coverage may qualify for the PTC. However, under these circumstances, the employee would not be eligible for the PTC.
Note: It is important to note that this proposal should not affect the penalties that apply to ALEs. The proposed regulations would make changes only to the affordability rules for family members other than the employee and therefore the number of employees who receive a PTC would not be affected.
The proposed regulation can be found at: www.federalregister.gov/documents/2022/04/07/2022-07158/affordability-of-employer-coverage-for-family-members-of-employees