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IRS proposes fix to ACA ‘family glitch’ loophole

Health and Benefits
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By Anu Gogna and Benjamin Lupin | April 19, 2022

The proposals would not change the ACA employer mandate; however, the proposed regulations could indirectly affect employer plan sponsors.

On April 5, 2022, the IRS issued proposed regulations (along with a fact sheet) that would help close the so-called family glitch loophole in the Affordable Care Act (ACA), which has prevented millions of people from qualifying for health plan premium subsidies on the ACA exchange. Families who are deemed to be eligible for “affordable” employer-provided health coverage are ineligible for premium assistance on the ACA exchange. The family glitch results from the ACA rule that bases eligibility for a family’s premium subsidies in part on whether an employee has access to affordable self-only (or employee-only) health insurance coverage through his or her employer, not taking into account the additional costs of covering the employee’s family members.

The regulations would apply for taxable years beginning after the date they are finalized (i.e., if finalized this year, they would be effective January 1, 2023). Comments are due 60 days after the proposed regulations are published in the Federal Register. In addition, the IRS will hold a hearing on the proposed regulations on June 27, 2022.

Proposed regulations

For 2022, employer-provided coverage is considered affordable if an employee’s contribution is no more than 9.61% of his or her income. The proposed regulations would amend the Internal Revenue Code so that employer-provided coverage would be considered affordable for an employee’s family members if the cost of family coverage does not exceed 9.5% (as adjusted) of household income.

In addition, an eligible employer-sponsored plan would meet the minimum value requirement, with respect to family members, only if the plan's share of the total allowed costs of benefits provided to family members is at least 60% and the plan benefits include substantial coverage of inpatient hospital services and physician services.

Employer implications

The proposals would not change the ACA employer mandate requiring applicable large employers (those with 50 or more full-time and full-time equivalent employees) to offer minimum essential health coverage that is affordable and meets minimum value to employees and their dependents. Affordable, minimum value coverage for full-time employees would still be based on self-only, not family, coverage affordability.

However, the proposed regulations could indirectly affect employer plan sponsors, for example, if an employee’s family members who become newly eligible for subsidies under the proposed regulations decide to purchase ACA exchange coverage rather than enroll in employer-provided coverage. This type of “split coverage” would result in multiple deductibles and maximum out-of-pocket limits for the family, thereby potentially increasing total out-of-pocket costs. The preamble to the proposal also notes that families might prefer the benefits and provider networks of employer coverage, compared with ACA exchange coverage.

Authors

Senior Regulatory Advisor, Health and Benefits

Senior Regulatory Advisor, Health and Benefits

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