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How the New Rule Fixing ACA Family Glitch Will Impact Employers and the Exchange

On October 11, 2022, the Treasury Department and Internal Revenue Service finalized a rule designed to close a loophole in the Affordable Care Act (ACA) that blocked family members from receiving ACA tax credits if someone in their household had access to an affordable employer-sponsored health plan. The change covers 2023 enrollments that start November 1. 

What this means is that millions of people, nearly half of which are families of low-income workers, will now be eligible to buy ACA coverage and receive financial assistance with both premiums and deductibles. Under the new rule, eligibility for premium tax credits (PTCs) is based on whether each family member (rather than just the employee) can enroll in adequate, affordable employer-sponsored coverage. If it is determined that a person does not have access to employer insurance – through their own employer or that of a family member – that meets affordability and adequacy standards, they may now be eligible for PTCs to use to purchase coverage on the ACA marketplace. 

Record Sign-ups on the ACA Exchanges 

Over the years, the ACA has seen various changes. Each modification to the law results in a record number of enrollments. According to the Kaiser Family Foundation, ACA enrollment in 2015 was more than 11 million. Last year, the enrollment was more than 12 million. This year has already resulted in a record 13.6 million enrollments in individual coverage under the ACA, with another month still left for Americans to sign up. 

Analysts credit the record sign-ups to the Biden administration’s efforts, as well as the American Rescue Plan Act, which “increased and expanded subsidies temporarily for low- and middle-income individuals and families to purchase health coverage on the ACA Marketplaces for 2021 and 2022,” according to a report released earlier this month by the Kaiser Family Foundation

What This Means to Employers 

It is likely some employees may switch from their family plans to a self-only plan so their dependents/spouses can access a premium subsidy. This could cause employer insurance costs to go down since self-only plans are less expensive. 

In addition, employers currently only report the lowest cost employer-sponsored, self-only plan to the IRS. The question is whether fixing the “family glitch” will pave the way for a new requirement in the future – reporting on the lowest cost family plan. So far, no additional employer reporting requirements have been mentioned. 

Tracking MEC and Affordability is Still Key 

With an increase in Americans opting to enroll in health care through the State and Federal ACA marketplaces, it is more important than ever for employers to offer plans that meet ACA affordability requirements. Employees are beginning to find cheaper alternatives on the exchange, which could cause organizations’ Minimum Essential Coverage percentage to drop below the 95% threshold and put them at risk for penalties. 

Employers may also face a penalty under the ACA if they fail to provide affordable coverage that meets minimum value requirements for any reason. Individuals earning less than 400 percent of the federal poverty level (FPL) were eligible for a subsidy until 2021. This higher threshold is proposed to be extended until 2025. With the lower threshold, more workers are eligible for subsidies, putting employers that fail to provide affordable coverage at risk of a penalty. 

We continue to remain up to date on breaking news and regulations. Our systems are updated to reflect any changes to reporting requirements and affordability calculations. If your company is experiencing reporting pains or has been non-compliant in the past, please contact us so we may review your options and help mitigate any risk and remain complaint moving forward.