IRS Proposes a Revised Rule on Determining Affordability and Minimum Value
April 15, 2022
On April 5, 2022, the IRS released a proposed rule that would change how affordability and minimum value are determined in some circumstances. While the stated goal of these rules is to increase eligibility for premium tax credits (PTC) for individuals who purchase health insurance coverage through a Health Insurance Exchange, there may be some limited applicability to large employers.
Under the Affordable Care Act (ACA), individuals who do not have access to health care that is considered both affordable and minimum value may qualify for a PTC to purchase coverage through a Health Insurance Exchange. Currently, both affordability and minimum value are determined based on the coverage available to the employee, without regard to the coverage offered to family members. If the coverage available to the employee is of minimum value, and the cost of self-only coverage does not exceed 9.5% (as adjusted annually) of household income, then no one in the family is eligible for a PTC. This is often referred to as the “family glitch.”
Proposed Definition of Affordability
These rules do not change how affordability is measured as it relates to an employee. If the cost of self-only coverage does not exceed 9.5% (as adjusted annually) of household income, then the coverage would be considered affordable for the employee.
However, the proposed rules add a separate test to determine whether family members may be eligible for a premium tax credit. If the amount an employee would have to pay for family coverage (without deducting the employee portion) exceeds 9.5% (as adjusted annually) of household income, then the coverage would not be considered affordable for the family members, and they could be eligible for a PTC to purchase coverage through a Health Insurance Exchange.
It does not appear that this will have an effect on the employer mandate rules applicable to large employers, because the definition of affordability is not changing as it relates to employees.
Proposed Definition of Minimum Value
These rules would change how minimum value is determined. Currently minimum value is based only on the coverage provided to the employee, without regard to the coverage provided to family members. The proposed rules would change the definition of minimum value to be based on the coverage provided to the employee as well as all covered family members. Therefore, the plan itself would either provide minimum value to all individuals covered by the plan – or to no one.
This would affect the employer mandate rules applicable to large employers, because the definition of minimum value in those regulations refers back to the definition used for PTC eligibility. However, since virtually all employer plans offer the same coverage to family members as to employees, the impact should be minimal.
The rule is in proposed form and will not take effect unless and until it is finalized. If the rule is finalized in 2022, it will take effect beginning in 2023.
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The above information does not constitute advice. Always contact your employee benefits broker or trusted adviser for insurance-related questions.
Holly leads Hylant’s ongoing efforts to provide our clients with compliance consulting services on new developments as well as ongoing requirements affecting health and welfare plans. She possesses a deep understanding of federal and state regulations pertaining to employee benefit plans, as well as extensive experience in group benefit plan operation.