The Internal Revenue Service issued a final ruling on Oct. 11, 2022 to resolve what has become commonly known as the "Family Glitch" regarding health subsidy eligibility for Affordable Care Act (ACA) coverage purchased using the Health Insurance Marketplace.
The Affordable Care Act (Section 36B) has specified that families are not eligible for subsidies if they are (determined to be) offered affordable, minimum value employer-sponsored health coverage.
The regulations (prior to the newly adopted rule) provided for a definition of "affordable" based solely upon the cost of the employee's required contribution for self-only contribution, when such contribution does not exceed 9.5% (adjusted) of their household income.
Yet, the regulations did not take into consideration the cost of the employee's required contribution for family members and, in such cases, those costs may be unaffordable.
At the same time, when employee-only coverage offered by an employer meets the minimum value requirement covering 60% or more of the total allowed costs of benefits, including inpatient hospitalization and physician service coverages for the individual employee, it is considered to be minimum value for all family and related individuals, even if the actual policy fails to meet the same requirements for the family as a whole.
These deficiencies of judging the family coverage against the individual coverage in terms of both premium and benefits when evaluating employer-sponsored coverage, serve as the basis for the "Family Glitch" conflict that precludes families from receiving subsidies for Health Insurance Marketplace ACA coverage plans under the original provisions of the ACA.
The final ruling proposed on April 7, 2022, in accordance with an Executive Order issued by President Biden goes to "Strengthening Medicaid and the Affordable Care Act." The rule changes how affordability of coverage and minimum value are determined for an employee's related individuals in relation to employer-sponsored health coverage.
To summarize, the final rule provides:
- A separate affordability test where an eligible employer-sponsored plan is affordable for all related individuals if the employee's required contribution for family (rather than single) coverage under the plan does not exceed 9.5% (adjusted) of household income.
- If an eligible employer-sponsored plan provides minimum value to an employee, the plan also will provide minimum value for all related individuals if the scope of benefits is the same for the employee and all related individuals and cost sharing (including deductibles, co-payments, coinsurance and out-of-pocket maximums) under the plan is the same for the employee and all related individuals under the tier of coverage that would include the employee and all related individuals.
- No change is made in the existing affordability test as it relates to the employee (based upon this final rule).
- No change in the ACA mandate with regard to applicable large employers in terms of the requirement under IRC Section 4980H to offer full-time employees and their qualified dependents the opportunity to enroll in an affordable, minimum value minimum essential coverage employer-sponsored plan or make an employer-shared responsibility payment to the IRS.
To see the official final rule published in the Federal Register open your browser to this official Government website.
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