Recently, the IRS released a proposed rule to assist more individuals with access to a premium tax credit on the Marketplace Exchange (Exchange). Among other items, eligibility for a premium tax credit on the federal Exchange is now proposed to be based on the employee’s share of the cost of coverage for family coverage (not just the employee-only cost of the lowest-cost employer provided health plan). If finalized, the proposed rule would be effective beginning in 2023. While this proposed rule does not appear to impact Affordable Care Act (ACA) employer mandate compliance, employers should be aware of these developments.
Under the current Internal Revenue Code (IRC) Section 36B, individuals are ineligible for premium tax credits on the Exchange when they are otherwise eligible for minimum essential coverage (MEC) – e.g., employer-sponsored group health plans – that meets affordability and minimum value criteria. For 2022, contributions for employer-sponsored group health plan coverage must be less than 9.61% of household income to be deemed affordable under the ACA. It is important to note that the affordability threshold is based off the premium contribution for the lowest-cost employee-only coverage offered (i.e., the employee’s self-only coverage), not the premium contribution required to cover any dependents.
As a result, family members are ineligible for a premium tax credit on the Exchange when they are eligible for employer-sponsored group health coverage through an employee who is receiving affordable coverage based on the employee-only contribution. This is true even when the contributions for family coverage are unaffordable.
The proposed rule would change the basis of the affordability test (to allow family members to obtain a premium tax credit on the Exchange) to be based on the cost of employer offered family coverage (rather than employee-only coverage). Note that this proposed change does not impact how affordability is determined for employer provided employee-only coverage. More specifically, an offer of employment-based coverage would be unaffordable for family members if employee contributions of family coverage exceed 9.61% (for 2022) of household income.
That said, dependents who are offered unaffordable (as based on the premiums for family coverage) employment-based family coverage could be eligible for more affordable coverage on the Exchange via a premium tax credit, beginning in 2023.
Impact to ACA Employer Mandate Requirements
The ACA employer mandate requires applicable large employers (ALEs) to provide an offer of coverage that is both affordable and meets minimum value to at least 95% or more of full-time employees (and dependents). However, the penalty under the ACA employer mandate is only triggered when an employee receives a subsidy for marketplace coverage (not an employee’s family member). The proposed rules provide premium tax credits to family members of employees who are not offered affordable employer-sponsored group health plan coverage.
That said, the proposed rule – if finalized – should not impact employer responsibility under the ACA employer mandate. Rather, the proposed regulations would affect individuals who enroll in individual health insurance coverage through the Exchange and who may be allowed a premium tax credit for the coverage due to an unaffordable offer of coverage as defined by the proposed rule.
Employers should be aware of these developments and can review the proposed rule for more information (including proposed regulations on minimum value calculations for family coverage).