The IRS has issued proposed changes to Affordable Care Act that would make more people eligible for subsidies.
Currently “…the Affordable Care Act (“ACA”) [measures] whether coverage is affordable based on the cost of employee-only coverage. This has led to the creation of the “family glitch,” which has meant that spouses and dependent children of employees who are offered affordable, minimum value coverage have not been eligible for federal tax credits to purchase coverage through the exchange.” (1)
“The proposed change would extend the ACA’s affordability measure from being based solely on employee-only coverage, to being based on all tiers of coverage.” (1)
The good news for employers is that they will not be penalized if dependents receive ACA subsidies. The employer penalties will continue to hinge on the employee only.
Currently the requirement to offer health insurance of “minimum value” (2) applies to employees only. Under the proposed regulations, “employee family member coverage must now comprehensively meet the minimum value standard.” (1)
Conclusions
- The good news is this does not appear to have a big impact on employer ACA reporting. Presumably employers will need to communicate the lowest cost employee plus spouse, employee plus child, and employee plus family plans.
- It does become more complicated for dependents to determine their eligibility for ACA subsidies considering, for example, the affordability determination and definition of dependent (IRS and ACA have different definitions of dependent). Perhaps the 87,000 new IRS agents will help taxpayers identify when they made a mistake. (3)
- Most employers probably offer medical plans to dependents that meet the “minimum value” definition. If not, dependent health plans will need to be enhanced, which could increase the dependent premiums for the employer and/or employee.
- On the one hand, it may be nice that the IRS is expanding the ACA eligibility, but isn’t that the job of Congress? Congress has the job of determining what government benefits to provide and how to pay for them. How to pay is not a consideration of federal agencies such as the IRS.
(1) https://www.benefitspro.com/2022/07/13/acas-family-glitch-fix-what-employers-need-to-know/
(2) See the following page for a definition of minimum value: https://news.leavitt.com/employee-benefits-compliance/understanding-difference-minimum-essential-coverage-essential-health-benefits-minimum-value-actuarial-value/
(3) https://www.kiplinger.com/taxes/605107/new-irs-agents-and-the-inflation-reduction-act