Quick facts you need to know
Who does this impact?
This legislation update will impact up to 5.1 million employees and their families. The employee’s spouse and dependents could now qualify for a premium tax credit for health insurance purchased through the marketplace exchange, different from the one offered by their employer, which is typically not as affordable.
What do employers have to do?
It is very important for employers offering health insurance to their employees to explain the changes impacting them and their families.
When can I switch my family to a new plan?
During the open enrollment period, individuals will have from November 1st, 2022 – January 15th, 2023, to enroll their family members in an affordable health insurance plan before this time-sensitive deadline.
Who can help guide us?
Contact us for help, as we can provide quotes and enrollment guidance at no extra cost to you.
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Impact of this Family Glitch Legislation Final Rule
On October 11th, 2022, the IRS released a final rule that changes the premium tax (PTC) eligibility rules for family members. Many employee family members will likely be eligible for a premium tax credit for health insurance purchased through the marketplace exchange.
However, the final rule does not change the affordability rules for employees. Employers will continue to offer affordable coverage if the employee’s required contribution for self-only coverage does not exceed 9.12% (as adjusted) of household income.
Employees are not eligible for the premium tax credit if they have access to employer-sponsored health insurance that is deemed affordable and provides minimum value.
However, under this new legislation, their dependents could become eligible for a premium tax credit for the plan year 2023.
Who Could Qualify for Subsidized Exchange Coverage Post-Family Glitch?
Below are 5 examples of how this new legislation could affect employees and their families.
Scenario 1
Carrie is married to John, and they file a joint tax return. John does not have access to employer-sponsored coverage, but Carrie does. Carrie’s employer offers them coverage as a couple that is unaffordable based on their household income. However, the coverage would be affordable for Carrie if she joined the plan as a single individual.
Who Has Affordable Coverage?
Carrie has an offer of affordable employer coverage.
Who Qualifies for Subsidized Individual Coverage?
John qualifies for subsidized coverage because he does not have an affordable offer from either his or Carrie’s employer.
Does the Employer Have Penalty Liability? Carrie’s employer does not. If John’s employer is an Applicable Large Employer (ALE), then they are at risk of receiving a penalty for not offering him affordable employee-only coverage.
Scenario 2
The facts of Scenario 1 remain the same, except that John gets a job at a company that offers him affordable coverage based on the single premium rate.
Who Has Affordable Coverage?
Carrie and John now both have affordable employer offers of employee-only coverage.
Who Qualifies for Subsidized Individual Coverage?
Nobody.
Does the Employer Have Penalty Liability? No.
Scenario 3
The facts of Scenario 2 remain the same; however, John and Carrie now have three children ages 10, 12 and 14. The cost to insure their whole family together under either employer plan would be unaffordable based on their family income.
Who Has Affordable Coverage?
Carrie and John both have affordable employer offers of employee-only coverage.
Who Qualifies for Subsidized Individual Coverage?
Their three children qualify for subsidized coverage because they do not have affordable employer-sponsored coverage.
Does the Employer Have Penalty Liability? No.
Scenario 4
The facts of Scenario 3 remain the same but Carrie’s company instead offers affordable family-level coverage.
Who Has Affordable Coverage?
The whole family now has access to affordable coverage through Carrie’s employer. John continues to also have an offer of affordable employee-only coverage through his own employer.
Who Qualifies for Subsidized Individual Coverage?
Nobody.
Does the Employer Have Penalty Liability? No.
Scenario 5
The facts of Scenario 4 remain the same, except John and Carrie no longer claim their oldest child, Catherine, as their tax dependent because she is now 23 and working. The cost of employer coverage through John’s work remains unaffordable to anyone in the family except for him. The cost to insure John and the two younger children on Carrie’s employer-sponsored plan is affordable. When they add in the cost of insuring Catherine, though, the coverage becomes unaffordable.
Who Has Affordable Coverage?
John, Carrie and the two younger children continue to have access to affordable coverage through Carrie’s work. John continues to also have an offer of affordable employee-only coverage through his own employer. The fact that adding Catherine to Carrie’s coverage would make it unaffordable for the whole family is not a consideration, as Catherine is not a tax dependent.
Who Qualifies for Subsidized Individual Coverage?
Catherine may be eligible for subsidized coverage if she chooses not to enroll in Carrie’s coverage. If she has an offer of affordable single coverage through her own employer, then she will not qualify for subsidized coverage.
Does the Employer Have Penalty Liability? Carrie and John’s employers do not. If Catherine’s employer is an Applicable Large Employer (ALE), then they are at risk of receiving a penalty for not offering her affordable coverage.
Additional Details for Employees & Employers
Under the IRS rule, you will need to determine “family members” that will be on the same federal income tax return. An individual plus their spouse if married and filing jointly, plus any dependents that you (and your spouse, if applicable) claim.
You will need to determine what your “family premium” is. Specifically, what is the lowest-cost employer plan that would cover all of your family members of the tax household who are offered coverage by the employer?
Suppose the tax household includes just an employee and spouse. In that case, the family premium is the lowest cost premium that could cover those two people, such as the “self plus one” plan option, if offered.
If the tax household includes dependents, then the family premium is the one that would cover both the spouse (if there is one) and all dependents who are offered the employer coverage, even if those dependents aren’t seeking marketplace coverage.
What should consumers do if they have an offer of coverage or are enrolled in employer coverage?
- Consumers will need to submit a Marketplace application to find out whether they can get savings on a Marketplace plan, or whether their employer’s offer may be considered affordable for themselves or their family.
- Consumers may also need help from their employer to provide answers about the coverage the employer offers.
- Consumers can use the employer coverage tool PDF to collect the information the Marketplace needs before getting started.
- If a consumer is already enrolled in their employer’s coverage but wants to see if a Marketplace plan may be more affordable, they should fill out a Marketplace application on HealthCare.gov to find out whether they qualify for savings.
- People enrolled in employer coverage shouldn’t drop it before finding out whether they can get savings on a Marketplace plan.
If you qualify for a Marketplace plan with a premium tax credit and want to enroll in a Marketplace plan, what to do next with your employer coverage:
- Consumers must be enrolled in a health plan through the Marketplace to use the tax credit to help pay for a health insurance premium.
- Consumers can’t use both a premium tax credit and enroll in employer coverage for the same person.
- If they aren’t enrolled in the employer’s plan -once you’ve confirmed that they’re eligible for a premium tax credit AND enrolled in Marketplace coverage, they should tell the employer they’re declining (or “opting out” of) the employer coverage.
- If they’re enrolled in the employer’s plan but find out they qualify for Marketplace savings and want to switch, they’ll need to disenroll from employer coverage in order to enroll in a Marketplace plan with a tax credit.
Under the new affordability rules, an employee’s self-only premium for their own coverage may be considered “affordable,” blocking the employee from APTC and CSR eligibility, while the premium for family coverage may be considered “unaffordable,” meaning that family members other than the employee may be eligible for APTC and CSRs to lower the cost of Marketplace coverage. It’s important to help consumers in this situation understand their health coverage options for their family.
Coverage Scenarios
Split coverage (employer and Marketplace)
The employee could enroll in their affordable employer coverage, while their APTC/CSR-eligible family members enroll in a Marketplace plan.
- Families should keep in mind that this may mean they need to meet multiple deductibles and would have separate out-of-pocket maximums for each policy.
- Families should also keep in mind that the separate plans will have different provider networks and coverage for prescription drugs.
- If a consumer has already submitted an application with both the employee and their family members as applicants and wishes to pursue split coverage, they will need to update their application so that the employee is no longer seeking coverage in order to enroll only the employee’s family members (and not the employee) in a Marketplace plan. The consumer should report a life change and update the application so that the employee is included on the Marketplace application, but indicates they aren’t applying for coverage for themselves.
Marketplace coverage only
The employee could decline their affordable employer coverage, and the whole family could enroll in a Marketplace plan.
- The family will pay full price for the employee’s portion of the Marketplace plan premium (if the employee’s self-only plan is considered affordable), while other family members’ portions would be lowered by using APTC.
- If the family members are eligible for CSRs, they will need to enroll in a Marketplace plan with a separate enrollment group from the employee in order to maintain their CSRs. The Marketplace will default the non-CSR-eligible employee and their CSR-eligible family members into separate enrollment groups. Families should keep in mind that each enrollment group will be tied to a policy with its own deductibles and out-of-pocket maximums
Employer coverage only
The whole family could enroll in the employee’s offer of employer-sponsored coverage.
- While someone is enrolled in employer coverage, they are not eligible for the premium tax credit or CSRs for a Marketplace plan.
We encourage consumers to apply for 2023 Marketplace coverage during the Open Enrollment period beginning November 1, 2022.
Special Enrollment Periods
The employee could enroll in their affordable employer coverage, while their APTC/CSR-eligible family members enroll in a Marketplace plan.
- Consumers who are currently enrolled in employer coverage and wish to drop it and enroll in a Marketplace plan should confirm with their employer that they can terminate their coverage before their Marketplace plan would start.
- Consumers who are enrolled in a job-based plan may qualify for a Special Enrollment Period (SEP) if they are determined newly eligible for APTC because their job-based plan no longer offers affordable coverage, and they drop their employer coverage. This applies to consumers whose coverage is no longer affordable due to the change in IRS rules. Consumers can access this SEP by attesting “Yes” to the application question that asks about losing qualifying health coverage and providing the date they can end their employer coverage or the date they lost it in the past.
Health Reimbursement Arrangements (HRAs)
- The IRS rule does not impact how affordability is calculated for individual coverage Health Reimbursement Arrangements (HRAs) or Qualified Small Employer HRAs (QSEHRAs).
- Affordability for these types of HRAs will still be based on the reimbursement amount made available to the employee only.
DISCLAIMER: The information provided in this presentation is intended only as a general, informal summary of technical legal standards. It is not intended to take the place of the statutes, regulations, and formal policy guidance that it is based upon. This presentation summarizes current policy and operations as of the date it was presented. Links to certain source documents have been provided for your reference. We encourage audience members to refer to the applicable statutes, regulations, and other interpretive materials for complete and current information about the requirements that apply to them. The contents of this document do not have the force and effect of law and are not meant to bind the public in any way, unless specifically incorporated into a contract. This document is intended only to provide clarity to the public regarding existing requirements under the law.