The “family glitch” stems from 2013 guidance from the Treasury Department and the IRS. It essentially stated that a family’s eligibility for a marketplace premium subsidy is based on whether or not employer-sponsored insurance is affordable, with minimum value coverage for only the employee. That means the employee’s family members are not eligible for premium subsidies if the employee-only coverage is considered affordable. Under the ACA, employers have to offer coverage to some dependents, however, there is no requirement that employers contribute to that coverage.
Background on the ACA “Family Glitch”
The Affordable Care Act (ACA) of 2010 requires applicable large employers (ALEs) to provide affordable minimum value coverage to full-time employees. Here are some key ACA definitions:
- ALEs = employers with 50 or more full-time and full-time equivalent employees
- Minimum value = plans that reimburse at least 60% of the total allowed costs of benefits
- Affordable = employee’s required contribution for self-only coverage does not exceed 9.5 percent (escalated annually, now at 9.61%) of the taxpayer’s household income for the taxable year
An employee who receives an affordable offer of coverage, from their employer, for a minimum value health plan is not eligible for premium subsidies in the Exchange/Marketplace. The dependent premium, however, is not considered in the affordability calculation. While employers may provide affordable premium contributions for the employee’s coverage, there is no requirement to do so for dependent coverage. In fact, many employers provide lower, or no, premium assistance for dependents.
As a result of affordability being based on employee-only coverage, spouses and dependents would not be eligible for premium tax credits on the Exchange even though their portion of the coverage cost is not affordable. With little or no premium assistance from the employer and a lack of eligibility for government premium assistance, many families may forgo health insurance coverage. Herein likes the “family glitch.”
The “Family Glitch” Final Rule
The final rule is an attempt to fix the “family glitch” by allowing an employee’s spouse or dependents to receive premium subsidies even if they are eligible for the employer’s group health plan. Specifically, an offer of coverage to family members will be considered affordable if the portion of the annual premium the employee pays for family coverage is less than 9.5% of household income (adjusted annually, 9.12% for 2023). If the employee portion is greater than 9.5% (adjusted) of family income, the family members may be eligible for a premium tax credit. The rule will go into effect on January 1, 2023.
To keep the minimum value provision in line with the new affordability provision, the final rule extends the minimum value criteria for subsidy eligibility to include dependents. In this way, premium subsidies would now be available if the employer’s coverage offer does not meet the minimum value. Additionally, the rule further clarifies that plans must include “substantial inpatient hospital services and physician services” in order to meet minimum value.
What does this mean for employers?
The final rule does not add any new requirements for employers. It does not make any changes to the employee affordability rule or the employer’s offer of affordable coverage. Employers will still base ACA affordability on employee-only coverage (9.12% of household income for 2023).
Employers are still not required to make employer contributions to dependent health care coverage. If an employer offers minimum value, affordable coverage for their employee, the employee will still not be eligible for a premium subsidy. This new rule would only open premium subsidy eligibility for the employee’s spouse and dependents. Therefore, employers could see fewer dependent enrollments in their health plans.
However, employers do need to be aware of IRS Notice 2022-41, released along with the final rule. The Notice adds additional permitted mid-year election changes to Section 125 cafeteria plans. Specifically, the Notice states that a cafeteria plan may allow an employee to prospectively revoke an election of family coverage under a group health plan if the following conditions are met:
- One or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan through an Exchange during an annual open enrollment period or pursuant to guidance issued by HHS; and
- The revocation of coverage under the group health plan corresponds to the intended enrollment of the related individual in the Exchange and that the new coverage is effective no later than the day following the last day group health plan coverage is revoked.
Plans may rely on reasonable representations from the employee to allow the change. Employers desiring to allow this change will need to amend their cafeteria plan document.
What if an individual has multiple offers of coverage?
The final rule states that individuals with multiple offers of coverage from multiple employers are considered to have an affordable offer of coverage if at least one of the offers is affordable.
Litigation is expected to stop enforcement of the final rule. Opponents of the rule state that because the text of the statute defines affordable as a self-only plan, the IRS cannot unilaterally change the definition through regulation.
Rob is an employee benefits expert with over 25 years of experience. He is the founder and principal of Precision Benefits Group, a leading provider of corporate benefits plans. He is a member of the Philadelphia Business Journal Leadership Trust and regularly contributes to the publication.