The ACA provided a way for people to obtain subsidies when purchasing individual health insurance if they met certain income criteria and weren’t eligible for Medicaid/Medicare. For people with group health insurance, the law would only permit them to apply for subsidies if their coverage was deemed “unaffordable” or if it didn’t meet minimum value. Both “affordability” and “minimum value” are defined by the government.
Unfortunately, the government’s guidance on how to apply the ACA rules negatively impacted families with group coverage, called “The Family Glitch.” It said that if the self-only coverage offered by an employer was “affordable” and didn’t exceed a certain percentage of the employee’s income (or other safe harbor measurement), neither the employee nor any dependents would be eligible for a subsidy.
The IRS provided new guidance on October 11, 2022, to fix the “Family Glitch” effective January 1, 2023. The new regulations state that a family’s entire income would be taken into consideration for the calculation of affordability for individual health insurance subsidies.
The new guidance also changes qualifying event rules to allow an employee to dis-enroll their covered family members throughout the year if they will be enrolling in individual coverage, as they may now be eligible for subsidies.
REMINDER: Individual Open Enrollment for January effective dates begins November 1, 2022, and ends December 15, 2023.
What Did NOT Change
For Applicable Large Employers (those averaging over 50 full-time equivalent employees), the new regulations do NOT change:
- How ACA reporting is done.
- How the Pay or Play Penalties are calculated
- How employers set up employee premiums. Employers will not receive penalties for dependents of employees who receive subsidies if their other coverage tiers are not affordable.
Small group employers do not have to meet the affordability thresholds required by the ACA nor are they subject to the ACA penalties (keep in mind that insurance companies often have rules around employee premiums). Generally, small groups are those with less than 50 employees. If you are part of an IRS Control Group, employees of all the entities determine whether you must comply or pay the penalties.
What is the Long-Term Impact?
Individual health coverage is very different than group health coverage. The network of health providers is often limited as are prescription drug formularies. However, if the subsidies pay a substantial amount of the cost, it may be a better alternative for spouses and dependent children than the employer-sponsored plan.
The downside is that losing healthy, younger members could potentially make the employer groups less healthy as those who remain on the plan may be family members needing full networks and expanded drug lists due to health conditions.
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