10 Quick Facts About the New IRS Final Health Premium 'Family Glitch' Regs

What You Need to Know

The rule change could impact 3 million to 5.1 million people in families now affected by the current ‘family glitch.’
Employer clients may need extra help with explaining the changes to employees.
Clients offered access to ‘skinny plans’ may need extra help with analyzing their health coverage and using arrangements such as HSAs, flexible spending arrangements or supplemental health insurance.

The Internal Revenue Service today created a major health insurance advice event — the release of an employer health coverage affordability final rule.

The regulations, which some supporters call the “family glitch fix” regulations, are set to apply Jan. 1, 2023, which is less than three months away, according to a preview version of the new final family coverage affordability regulation.

The regulations will affect workers who find that the cost of their employers’ family coverage is very high, relative to their wages. Those workers’ spouses and dependents will be able to use federal premium subsidy money to pay for 2023 ACA exchange plan health coverage.

In states that use the federal government’s HealthCare.gov system to provide ACA exchange services, the open enrollment period for 2023 coverage starts Nov. 1 and is set to run until Jan. 15, 2023.

If the regulations take effect on schedule and work as the IRS expects, insurers, employers, ACA exchange programs, web brokers and traditional health insurance agents will be in a race to explain the new approach in time for workers to use ACA subsidies to pay for health coverage for their loved ones in 2023.

What It Means

Some moderate-income — or even relatively high-income — clients may need help with deciding whether they should enroll their spouses and children in the health coverage provided by their employers or in coverage provided by an Affordable Care Act public exchange.

Any employer clients may need extra help with explaining the changes to employees, and with deciding how the changes might apply to any health reimbursement arrangement programs they offer.

Agents and advisors who are active in public policy can help shape how the new approach applies, or does not apply, to workers who use HRAs to buy their own individual health coverage.

Background

The current Affordable Care Act system, which came to life in 2014, provides health insurance “premium tax credit,” or PTC, subsidies.

Moderate-income people can use the premium tax credit subsidies to pay for health coverage purchased through HealthCare.gov, or through state-run public exchange programs, such as Covered California and Your Health Idaho.

Workers who have access to what the government classifies as solid health coverage, or minimum essential coverage, cannot use the subsidies.

Workers can use the subsidies if they do not have access to solid employer coverage.

For 2022, employer coverage is classified as affordable if it costs less than 9.61% of a worker’s household income.

Today, ACA exchange programs and the IRS base the affordability calculations on the cost of worker-only coverage, not on the cost of covering the worker’s whole family. Because of that interpretation, which was developed in 2013, the children and spouses of covered workers might not be eligible for ACA exchange plan premium subsidies, even if a worker’s family cannot afford to pay for employer coverage for those family members.

The IRS posted draft family coverage affordability update regulations in April. The draft included a worker’s family members in the affordability calculations.

The IRS received 3,888 comments in response to the draft, including some that offered suggestions unrelated to the draft, such as proposals that the United States adopt a universal health care system.

Clara Raymond is listed as the regulation contact person.

Quick Facts

Here are 10 things to know about the new final rule.

1. IRS officials believe this regulation is important.

Some critics of the family coverage affordability draft argued that the calculation change will be too expensive and exceeds the scope of IRS authority.

IRS officials contend that the ACA provisions related to worker coverage affordability calculations are not clear about how affordability calculations should work, and that making the calculation change will help workers’ families.

“One married couple even testified to a state legislature that they divorced solely to retain the husband’s eligibility for the PTC after his wife got a new job with an offer of family coverage at a cost of $16,000, over half of the husband’s annual earnings,” officials write in the preamble, or official introduction, to the final regulations.

2. Implementing regulations can be tricky.

Some Republicans oppose the new family coverage affordability regulations. In the past, opponents of regulations have succeeded at blocking implementation of regulations, or changing how the regulations work, by going to court, or by blocking implementation funding.

3. If these regulations will take effect as written, on schedule, anyone involved in implementing them will be very busy.

IRS officials rejected requests to postpone implementing the new regulations until taxable years beginning after Dec. 31, 2023.

4. The IRS believes the regulations could require workers to think about coverage options for as many as 5.1 million family members.

Studies cited in the regulation preamble indicate that about 3 million to 5.1 million people could be in families now affected by the current family coverage affordability calculation approach.

About 600,000 to 2.3 million of those people could end up with ACA exchange plan coverage, and the total number of people who have some kind of major medical coverage could increase by 80,000 to 700,000, according to the studies.

Providing the extra subsidies could cost the federal government an extra $2.6 billion to $4.5 billion per year.

5. The new coverage affordability calculation definition of “family” includes only spouses and dependents.

U.S. employers now let workers’ children stay on the workers’ group health coverage until age 26, even if the children are ages 21 or older and are not dependents.

For coverage affordability calculation purposes, a worker can include the finances of a spouse who files a joint return with the worker, and any dependents, such as children.

The worker cannot include a child who is no longer a dependent.