On October 13, 2022 the IRS published the final rule that changes the affordability calculation to include the cost of family coverage, for employees seeking employee plus dependent(s) coverage, beginning in 2023. See below for the update –
UPDATE
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 the lowest cost health insurance plan option offered for family coverage does not exceed 9.12% in 2023 (adjusted annually) of household income. An employee’s required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of the employee and all other eligible individuals included in the employee’s family. Currently, the affordability calculation is based only on the “lowest cost, self-only coverage option”. Importantly, employers whose portion of the cost of family coverage to the employee fails the revised affordability test will NOT be subject to an employer shared responsibility penalty. The change (or fix) is strictly to allow more people to gain access to coverage on the individual market. The final rule also adds a minimum value rule for family members based on the benefits provided to the family members.
Original Blog Post (published 9/1/2022)
One of the chief aims of the Affordable Care Act (ACA) was to address the challenge associated with finding and purchasing affordable individual health insurance, for those that have no other option for coverage. Some might recall when there was both an INDIVIDUAL and an EMPLOYER mandate associated with the ACA. While there is no longer a tax penalty associated with going uninsured (i.e., the individual mandate), there is very much still an opportunity for people to purchase subsidized health insurance coverage, through the ACA’s exchanges. And, with the expected and pending fix of the so called “family glitch”, millions of people will become eligible for subsidized coverage. Importantly, and speaking of the ACA’s employer mandate, employers will need to rethink and possibly restructure premium cost sharing strategies associated with their group health insurance plan offerings!
Taking into account the affordability of health insurance for the entire family (not just the employee, which is the current ACA test), along with the recent expansion of ACA tax credits/subsidies to more benefactors than the original ACA guidelines prescribed (courtesy of the Inflation Reduction Act which extends (until 2025). Combined, these two changes affect an estimated 5.1 million people impacted by the “family glitch”; and the 13 million enrollees that currently receive a subsidy (source: Kaiser Family Foundation, Aug. 11, 2022). Suffice to say, the combination of the family glitch fix and expanded subsidies will allow millions of Americans to afford individual health insurance coverage.
The original qualifier for ACA subsidies was based on income relative to the federal poverty level (generally those making between 100% and 400% of the federal poverty level). The current, and now extended through 2025 qualifier replaces it with a more generous and easier obtainable income threshold. Going forward, those whose quoted cost of individual coverage for a so called silver level plan, exceeds 8.5% of their gross income, are eligible for a subsidy. As an example, under the original ACA subsidy criteria, a 40 year old couple making $25,000 per year would pay $76 per month for coverage, factoring for their subsidy. With the expansion, this same couple would pay $0 premium, and thus save $915 in just one year!
Now let’s look at the family glitch. Under current ACA guidelines, employers subject to the employer mandate (generally those with 50 + employees), face a veritable “pay or play” decision. They must decide whether to pay the associated fine for NOT offering health insurance at all (see “pay, a penalty of $2,750 per full time employee starting with the 31st one”); or offer coverage that meets both an affordability and minimum value test (see “play”). This is where the family glitch comes into play. Presently, only the cost of EMPLOYEE ONLY coverage is calculated to determine affordability. Affordability is tied to household income and for the current year (2022), the ceiling is 9.61% of income (9.83% in ’21, and 9.78% in ’20). So an employee whose portion of the cost of employer coverage exceeds the calendar year affordability threshold is technically eligible for ACA subsidies. And, if the employee chooses this option, the employer is faced with an increasing fine amount, which for 2022 is $4,120 for each impacted employee. And the fine amounts have increased every year since this aspect of the ACA went into effect!
The family glitch fix seeks to add to the affordability test, the cost of coverage for the employee AND their eligible dependents. And the cost of family coverage is decidedly higher than employee only coverage. According to the Kaiser Family Foundation, the annual average cost of employee only and employee/family coverage in 2021 was $7,739, and $22,221 respectively. As you can imagine, taking into account the affordability of employer offered health insurance for an entire family will have a significant impact on the cost of coverage to employers.
Details associated with the family fix are expected any time, and could possibly become effective January 1, 2023, adding to the challenges of annual open enrollment. A final thought on the family glitch – according to the Congressional Budget Office (CBO), the estimated taxpayer cost of fixing the family glitch is $45 billion over 10 years, with an estimated 190,000 previously uninsured people gaining coverage, according to the Urban Institute.
Employers that choose to PLAY and offer affordable coverage to their eligible employees…STAY TUNED!
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