Q: The IRS recently changed the ACA Premium Tax Credits (PTC) on Affordability for Family Coverage. What do employers and group health plans need to know about the change? Does this impact the affordability rules for Applicable Large Employers(ALE)?
A: Effective January 1, 2023, the new rules for Premium Tax Credit (PTC), changes the affordability for family coverage will be in place. Under the recent calculations for a PTC, an employer-sponsored plan is affordable for family members if the portion of the annual premium the employee must pay for family coverage (the employee’s required contribution) does not exceed 9.5% (as adjusted annually) of household income. An employee’s required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee’s family. The final rule also adds a minimum value rule for family members based on the benefits provided to the members. This rule will likely allow more family members to be eligible for the PTC or subsidy on the market exchanges.
The new law does not change the affordability rules for employers, and it will not change the ACA reporting requirements as stated in the Federal Register Affordability of Employer Coverage for Family Members of Employees. If an employer is an Applicable Large Employer and offers coverage that is affordable per the ACA, the employee will not be eligible for a subsidy.
The only potential impact for employers is due to the change in the family PTC; the IRS has expanded the special enrollment rights of permitted change-in-status for section 125 cafeteria plans or pre-tax deductions for medical plans (this does not include flexible spending accounts, vision, or dental) effective and goes into effect January 1, 2023, per IRS Notice 2022-41. A cafeteria plan may allow an employee to revoke prospectively an election for the group coverage other-than-self-only or family coverage, including one or more already-covered individuals (family, employee and spouse, and employee and child(ren)) coverage under a group health plan. This applies to employers with a non-calendar year plan. The following conditions must be satisfied for an employee to revoke an election other than single:
- One or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan (QHP) on the Exchange, or one or more already-covered related individuals seek to enroll in a QHP during the Exchange’s annual open enrollment period
- The election change corresponds to the intended QHP enrollment for new coverage effective beginning no later than the day immediately following the last day of the revoked coverage.
Plans may rely on the employee’s reasonable representation that the employee’s related individuals have enrolled or intend to enroll in a QHP through the exchange for new coverage that is effective beginning no later than the day immediately following the last day of the revoked coverage. The Federal Registry states that Notice 2014-55 does not allow an employee to revoke an election solely for coverage of the employee’s spouses or dependents under the employer plan.
Employers who wish to adopt the amendment must do so on or before the last day of the plan year in which the changes are allowed and may be effective retroactively to the first day of that plan year if the plan operates in accordance with the guidance and participants are informed of the amendment. However, amendments for a plan year beginning in 2023 can be adopted on or before the last day of the plan year beginning in 2024.
Employers will want to reach out to their benefits consultant to discuss the advantages and disadvantages of adopting the change.