The IRS issued final regulations to strengthen implementation of the Affordable Care Act by fixing the “family glitch.” The rules amend eligibility for the premium tax credit (PTC) to allow family members of workers who are offered unaffordable family coverage to qualify for premium tax credits. The regulations also add a minimum value rule for family members of employees, based on the benefits provided to the family members. This guidance would affect taxpayers who enroll, or enroll a family member, in individual health insurance coverage through a Health Insurance Exchange (Exchange) and who may be allowed a Premium Tax Credit for the coverage.
Premium Tax Credit Eligibility
The Premium Tax Credit would be determined based on an employee’s share of the cost of covering the employee and the related individuals. The affordability rule for related individuals represented the better reading of the relevant statutes. This was consistent with Congress’s purpose in the Affordable Care Act (ACA) ( P.L. 111-148) to expand access to affordable health care coverage. The Treasury and the IRS stated that Code Sec. 36B(c)(2)(C)(i), including the flush language that follows Code Sec. 36B(c)(2)(C)(i)(II), was correctly interpreted to provide that the affordability test for a related individual is based on the cost of coverage for the employee and the related individual.
Unless a related individual is also employed by that employer, the related individual may not enroll in the employer’s coverage on a self-only basis. Thus, the minimum essential coverage is what the related individual may enroll in, the family coverage offered by the employer. The affordability for employees is based on the employee’s cost for self-only coverage. The affordability for family members is generally based on the amount an employee must pay to cover the employee and the related individuals included in the employee’s family.
Cost of Coverage
The cost of covering individuals who are offered the coverage but are non-family members is not considered in determining whether the employee’s family members have an offer of affordable employer coverage. Consequently, a non-family member would not need a determination of unaffordable coverage to enroll in an exchange (QHP) and be eligible for the Premium Tax Credit if the individual otherwise qualifies. A non-family member may enroll in a QHP and be eligible for the Premium Tax Credit, if the individual is otherwise eligible, by simply not enrolling in the offered employer coverage. The final regulations do not amend the affordability rule for employees. An individual with multiple offers of employer coverage seeking to enroll in a QHP with advance Premium Tax Credit would provide information to the applicable exchange concerning the required contribution for each coverage offer. The exchange would determine if at least one of the offers is affordable.
In this case, the advance Premium Tax Credit would not be allowed for the individual’s exchange coverage. This process should minimize any burden or confusion relating to whether an individual with multiple offers has an affordable offer that would deny the individual the advance Premium Tax Credit and Premium Tax Credit for exchange coverage. For taxpayers for whom the advance Premium Tax Credit is not paid for their or their family’s QHP coverage, the IRS will update the instructions for Form 8962, Premium Tax Credit (PTC), and Publication 974, Premium Tax Credit (PTC), to address multiple offers of employer coverage.
Minimum Value Rule
The final regulations provide a minimum value rule for related individuals that is separate from the minimum value rule for employees. It requires a plan’s share of the total allowed costs of benefits provided to related individuals to be at least 60 percent. This minimum value rule for related individuals is not intended to require the use of a standard population for family members that is separate from the standard population for employees.
Further, an employer plan that provides minimum value to an employee also provides minimum value to related individuals if the scope of benefits and cost sharing including deductibles, co-payments, coinsurance, and out-of-pocket maximums under the plan are the same for employees and family members. The final regulations do not require a departure from the practice of computing minimum value for employees and related individuals based on the provision of benefits to a standard population that includes both employees and related individuals. The final regulations provide that an eligible employer-sponsored plan does not meet minimum value requirements unless it includes substantial coverage of inpatient hospital services and physician services.
The final regulations apply for tax years beginning after December 31, 2022.