IRS Revises Affordability and Minimum Value Definitions
October 20, 2022
On October 13, 2022, the IRS published a final rule that changes how affordability and minimum value are determined for family members of an employee. As a result, more individuals are likely to become eligible for premium tax credits (PTC) for coverage purchased through a Health Insurance Exchange.
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.”
Revised 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.
Revised Definition of Minimum Value
These rules do not change how minimum value is determined for employees. Whether or not a plan provides minimum value to an employee will continue to be based only on the coverage provided to the employee, without regard to the coverage provided to family members.
The final regulations add a minimum value rule for family members of employees based on the benefits provided to the family members. However, since virtually all employer plans offer the same coverage to family members as to employees, the impact of this change is expected to be minimal.
Impact to Employers
This rule does not affect the employer mandate rules applicable to large employers, because the definitions of affordability and minimum value are not changing as it relates to employees. The employer mandate requires large employers to offer coverage that is affordable and of minimum value to their full-time employees, and at least minimum essential coverage to their full-time employees’ dependents. The coverage provided to dependents does not need to be considered affordable nor of minimum value in order to avoid a penalty.
The IRS has stated the employer reporting requirements are not affected, and they do not intend to make changes to Form 1095-C to require any additional data elements from employers.
However, employers could see some employees opting out of family coverage and instead enrolling in employee-only coverage through the employer plan and covering their dependents through the Exchange with a PTC. Additionally, employers could get asked to provide family contribution information relative to those employees seeking a PTC for their dependents.
The changes apply beginning January 1, 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.