Originally published by Zywave, a Leavitt Group partner for compliance. Republished with permission. Some content and revisions by Leavitt Group.
Effective for 2023, the affordability of employer-sponsored coverage for family members is determined based on the cost of family coverage and not the employee-only coverage, now allowing families to receive a premium tax credit in the Marketplace Exchange even if the employee-only premium is deemed affordable under Affordable Care Act’s (ACA) affordability rules. These changes only impact the Marketplace Exchange eligibility for premium tax credits for insurance purchased through the Exchange for families. It does not impact the employer mandate rules or employers making calculations as to the affordability of their health plan. For 2023, affordability is 9.12% of the employee W-2 wages, hourly rate or Federal Poverty Level (employer may choose one of these safe harbor rules). It is effective taxable years after December 31, 2022.
On Oct. 11, 2022, the IRS released a final rule that changes the eligibility rules for the premium tax credit (PTC) used to purchase subsidized health insurance through the marketplace Exchange (which varies state-to-state, e.g., CoveredCA for California). The PTC is only available to individuals/families to purchase health insurance coverage through an Exchange. Individuals are not eligible for the PTC if they have access to employer-sponsored health coverage that is affordable and provides minimum value (see prior Leavitt Group article on minimum value for details). To-date, if the employee-only employer-provided health insurance is deemed affordable, the family would be barred from receiving the PTC even if the family rate would end up unaffordable by the same metric. This change will balance those scales.
Family Eligibility for PTC
Effective for 2023, when determining who is eligible for a Premium Tax Credit tax subsidy (PTC) to purchase health insurance in the Exchange, families whose employer sponsored health coverage is not affordable will be eligible to receive a PTC even if the employee-only coverage was deemed affordable under ACA rules. These changes do not impact the employer mandate, the pay or play or provisions or any other ACA rules applicable to employer sponsored plans. Under the current rules, families were often unable to receive subsidies to assist them in paying for their health insurance because if the employer sponsoring the group health plan they are eligible offered coverage that was affordable to the employee-only, even if unaffordable coverage to the families, as a way to save money or as a matter of employers have the inability to plan for unforeseen variances in family sizes and incomes,
Under the final rule, an employer-sponsored plan is affordable for family members if the portion of the annual premium the employee must pay for family coverage (the employee’s required contribution) does not exceed 9.12% in 2023 (9.61% in 2022; adjusted annually since the original 9.5% in 2014) of household income.
Impact of the Final Rule
Effective for 2023, more family members will be eligible for the PTC for coverage purchased through an Exchange. However, the final rule does not change the affordability rules for employees, which will continue to be based on the employee’s required contribution for self-only coverage. Therefore, an employer’s offer of coverage may be unaffordable for a family member even though it is affordable for the employee.
Also, this new guidance does not affect the ACA’s “pay or play” penalties for applicable large employers (ALEs) under the employer mandate, as these penalties are triggered only when an employee receives a PTC, not a family member. According to the IRS, this new guidance also does not impact an employer’s reporting requirements under Internal Revenue Code Sections 6055 and 6056.