IRS Expands Access to ACA Subsidies for Families

Earlier this week, the IRS issued a final rule meant to close the “family glitch” for Affordable Care Act (“ACA”) subsidies on the Federal Healthcare Exchange.  This “glitch” prevents family members from receiving ACA subsidies if someone in their household has access to an employer-sponsored health plan that meets the ACA’s affordability and coverage requirements. Since the ACA only requires that employer-sponsored plans be affordable for employees, this creates a scenario where family coverage under the employer-sponsored plan may be unaffordable the entire family.

In 2022, employer-sponsored coverage was deemed “affordable” if the cost for employee-only coverage would be less than 9.61% of household income. This threshold is indexed annually by the IRS, and will drop to 9.12% in 2023.

The rule change is straightforward.  Effective for the plan year beginning January 1, 2023, the affordability determination for a family’s employer-sponsored health insurance will now be based on the cost to cover the employee and family members, not just employees.

Important for plan sponsors is that nothing will change for their obligations under the ACA’s employer mandate. Large employers must still provide coverage that is affordable based on the cost to the employee only or face a penalty.  There is still no penalty if the coverage is unaffordable for family coverage.  The new affordability requirements only apply to a family member’s ability to receive a subsidy on the ACA Exchange.  If a family member does receive a subsidy, there is no penalty on the employer.

It is expected that legal challenges will soon be brought against the rule.  However, as the rule does not impact employers directly there is nothing that needs to be done with regard to their health coverage offerings.

If you have any questions about this new ACA rule, or employee benefit issues in general, please contact any of Graydon’s Employee Benefits team.

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