IRS Proposed Ruling Could Change ACA Affordability
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Last month the IRS published a proposed regulation that would amend the existing rule regarding employer-sponsored Minimum Essential Coverage (MEC) for family members of an employee.
The proposed rule would effectively solve the “family glitch” and make coverage more affordable for spouses and dependents, instead of just for the employee. The White House estimates the proposed ruling would provide insurance coverage to an estimated 200,000 uninsured people, and nearly 1 million Americans receiving more affordable health insurance.
Below we’ve covered what you need to know about the proposed regulation.
How will the proposed rule change ACA affordability?
Under the current regulations, an employer must offer employees self-only coverage that is affordable as defined by the ACA. For the 2022 tax year, affordability is set at 9.61%. There is no requirement for employers to also ensure coverage is affordable for dependents or spouses of the employee.
The proposed rule would expand affordability to include an employee’s spouse and dependents by revising the regulations interpreting affordability under the ACA. If passed, healthcare affordability would be calculated on the cost of employee and family coverage, not just the employee’s self-only coverage cost.
It is important to note that the proposal would also require family coverage to meet Minimum Value (MV). The proposed regulations clarify that the MV will need to meet the 60% threshold of total allowed costs of benefits and supplying substantial coverage of inpatient hospital and physician services for the employee and their family.
Who does the proposed ACA affordability rule affect?
The proposed regulations primarily affect taxpayers who enroll or enroll a family member in individual health insurance coverage through a state or federal health exchange and who receive a Premium Tax Credit (PTC) for the coverage.
If the proposed ruling is signed into law, there could be new challenges for employers and their ACA Employer Mandate responsibilities.
Specifically, the IRS acknowledges that some employers may see employees shift from employment-based coverage to subsidized marketplace coverage, which in turn, could cause an uptick in PTC distribution. As a reminder to employers, PTCs are the trigger for the IRS identifying ACA non-compliance with the Employer Mandate and the subsequent issuance of Letter 226J.
How will the proposed rule impact ACA reporting?
From a reporting standpoint, not much will change for employers with regard to ACA compliance. The proposed regulations deal with family coverage and thus should not have an impact on employers’ obligations to make an offer of MEC and employee self-only coverage that is affordable and meets MV. In the proposed regulations’ current form, employers still wouldn’t have to make contributions to dependent healthcare coverage.
With the proposed rule still making its rounds through the legislature, it’s possible for the requirements to change. Employers should turn their attention to ACA compliance processes so that they’re better prepared to handle any IRS penalty correspondence. With PTC allocation likely going up and the IRS increasing ACA enforcement, now is the time to make sure your processes are tight-knit.
To understand your organization’s strengths and weaknesses regarding ACA compliance, get your ACA Vitals score below.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.
