The IRS has issued final regulations amending the Affordable Care Act (“ACA”) rules regarding eligibility for the law’s premium tax credit (“PTC”). The new rules provide that the “affordability” of employer-sponsored coverage for employees’ family members is based on the family’s cost for such coverage. Previously, affordability was determined by examining the cost of coverage for the employee only.
Law. Under the ACA, people who do not have access to “affordable” health insurance through their employers may qualify for the PTC to help purchase coverage through the ACA’s health insurance Marketplaces. The ACA and its regulations provided 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. (NOTE: The ACA’s required contribution percentage is 9.5%, as indexed annually.) However, after finalizing previous regulations, the IRS recognized that the rules created a “glitch” where family members of the employee might not be eligible for the PTC even though the employer’s coverage was not affordable for them.
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 a Marketplace.
Final Regulations. To correct the family glitch, under the new regulations, 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. As with the prior regulations, the employee would not be eligible for the PTC under these conditions.
NOTE: This new regulation does not affect the shared responsibility penalties that apply to ALEs under the ACA; it only changes the affordability rules for family members other than the employee. Therefore, the number of employees who receive a PTC should not be affected.
Finally, the preamble to the new regulations clarifies that they do not change the information reporting requirements for employers under the ACA. This includes the reporting required by employers under Internal Revenue Code sections 6055 and 6056, which is done on (the IRS’s) Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and the IRS “does not intend to revise Form 1095-B or Form 1095-C to require any additional data elements related to the new rules.”