Final Rule Released to End the ACA “Family Glitch” 

Last week the IRS released the Final Rule “Affordability of Employer Coverage for Family Members of Employees” that revises the definition of affordability of employer-sponsored coverage as it relates to family members of the employee. This rule is effective on 12/12/22 and will make some family members newly eligible to enroll in subsidized marketplace coverage for 2023.  

What is the ACA “Family Glitch”?

The “family glitch” refers to the 2013 ACA rule that based eligibility for a family members premium subsidy on whether available employer-sponsored insurance is affordable for the employee only, even if it’s not actually affordable for the whole family. The Affordability Threshold set by the IRS to determine affordability (9.61% of household income in 2022, and 9.12% for 2023) was applied to employee coverage only, leaving family members ineligible for a subsidy if the employee only coverage was within the threshold for affordability. 

How does the final rule fix the “Family Glitch”?

The new rule requires a separate affordability determination for the employee (based on self-only coverage), and for family members (based on the total cost of family coverage). So depending on how an employer subsidizes the cost of family coverage, it’s possible that coverage could be considered affordable for the employee but not for family members. In that case, the family members would potentially be eligible for a premium tax credit in the marketplace, but the employee would not.

Does this effect the ACA’s Employer Mandate for Large Employers?

Nothing will change about the ACA’s employer mandate. Large employers will still have to provide affordable, minimum-value coverage to their full-time employees. But there will still be no affordability requirements as far as the coverage that’s offered to dependents. The employer mandate penalty is only triggered if an employee’s coverage is unaffordable and they receive a premium tax credit in the marketplace. There is no mechanism for triggering the penalty based on an employee’s family members receiving premium tax credits in the marketplace.

We will send additional updates over the next few weeks as more information becomes available.