Final rule reduces reliance of family members on employer health plans

A final new rule issued by the IRS aims to make it cheaper for many spouses and dependents now covered by employer-sponsored family health plans — or who are uninsured because family premiums are too expensive. – purchase coverage through the Affordable Care Act (ACA).

The rule applies to coverage for plan year 2023, so some employers may see a drop in applications for family coverage during the fall open enrollment season for plan year health benefits. next.

The rule “Affordability of employer coverage for family members of employees” was published in the
Federal Register October 13. The final rule largely unchanged adopts the proposed rule that the IRS issued in April 2022.

Put an end to the “family glitch”

The rule addressed what its proponents called the “family problem”. Under the ACA, employees and their family members are not eligible for a premium tax credit to purchase subsidized coverage through the ACA health insurance marketplaces if the employee has access to “affordable” health insurance through an employer, i.e., adjusted for 2023, an offer of personal coverage that does not exceed 9.12% of employee income .

However, current regulations define employer health insurance as affordable if coverage only for the employee, and not for family members, is affordable, making limited-income family members ineligible for coverage. a premium tax credit for an ACA market plan.

From 2023, under the new rule, if coverage for the family as a whole costs more than 9.12% of household income under the lowest-cost employer-sponsored option, members Non-employed family members will be eligible for financial assistance through the ACA marketplace. .

“About 1 million Americans will get coverage or see their insurance become more affordable under the new rule,” according to a White House statement. “This is the most significant administrative action to implement the Affordable Care Act since the law was put into place.”

Options for family members

According to comments attributed to a senior administration official at a press briefing in April, spouses and adult children who are offered insurance through family members’ jobs sometimes spend 25% or 30 % of their health insurance income.

However, some of the 5 million people affected by the family issue “may choose to stay in the coverage they have today because they find it more convenient to have their whole family in one health plan”, added the manager. “But others, and the people for whom it is the most difficult, will…move from the coverage they have today to more affordable market coverage.”

Improved ACA Market Grants

“Most of the rule comes into effect for the 2023 tax year, which means eligible family members can sign up for subsidized market coverage for 2023,” wrote Katie Keith, director of the health policy and legal initiative of the O’Neill Institute for National. and Global Health Law at Georgetown University, in a Health Affairs Forefront blog post.

“The solution to the family problem comes at a time of record market listings,” she noted, thanks in part to more generous subsidies in the market as part of an extension of improved subsidies from the American Rescue Plan Act by the Inflation Reduction Act.

No effect on the employer’s mandate

Keith noted that the final rule will not affect liability under the employer mandate which requires large employers to provide coverage to employees and dependents, as “penalties for breach of mandate are only triggered when a
employee receives premium tax credits through the market.”

However, she said, “the final rule extends premium tax credits only to
family members workers who do not benefit from family coverage based on affordable employment. It does not affect the eligibility of employees and therefore does not imply the mandate of the employer.”

No additional ACA report

The tax attorneys had noted that in order for the IRS to determine the tax credit on premiums involving family coverage, the agency may require additional information from employers on IRS Forms 1094 and 1095.

For example, while employers currently report to the IRS only the cheapest employer-sponsored self-sufficient insurance plan, some feared that solving the “family problem” could pave the way for a new obligation to also declare the least expensive family plan. plan, among other changes.

In the final rule, however, the IRS said “nothing in these final regulations affects information reporting requirements for employers, including required reports…on Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, respectively.”

The IRS further stated that it “does not intend to revise Form 1095-B or Form 1095-C to require additional data elements related to the new rules.”

In response to the proposed rule, the Society for Human Resource Management (SHRM) warned the IRS against creating new administrative burdens for employers.

In a June 7 comment letter, Emily M. Dickens, SHRM chief of staff and head of government affairs, wrote that “although the ministry’s proposal to address this ‘family issue’ offers a more meaningful opportunity for accessing premium tax credits than the minimum value proposition, it also creates the potential for even greater reporting complexity.”

She said “adding a requirement to report the cost of dependent coverage would compound existing challenges for HR professionals.”

Concerns of the “unfavorable section” for employers

In a June 6 letter criticizing the proposed version of the rule, Katie Mahoney, vice president of health policy at the U.S. Chamber of Commerce, wrote, “There is a lot at stake if the market sponsored by the employer is disturbed by the infiltration of wholesome individuals on a federally subsidized exchange plan.”

She noted that according to White House estimates, 1 million people would switch from their employer’s coverage to the ACA market due to the resolution of the family issue.

“People who choose to switch from their workplace plans to the ACA market will likely be younger and healthier, opting for the low or free premiums offered under ACA plans, even if that means higher deductibles and less affluent perks,” Mahoney wrote. “The result will be adverse selection in employer markets – healthy people will leave employer coverage for ACA coverage while those with health problems will stay on wealthier employer coverage. The result will undoubtedly further increase premiums and exacerbate problems in labor markets.”

The risks associated with adverse selection, she noted, are “particularly concerning with respect to plans sponsored by small employers.”

However, Tango Health, a software and services company focused on employer-sponsored healthcare, blogged after the publication of the proposed rule that “certain employees may switch from their family plans to a personal plan only to that their dependents/spouses can access a premium This could lower employer insurance costs.

“It is expected that legal challenges will soon be filed against the rule,” said John Kirk, an attorney with the Graydon law firm in Cincinnati.

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