On October 11, 2022, final regulations were released addressing the so-called “family glitch” under the Affordable Care Act (ACA) premium tax credit (PTC) rules. The “family glitch” refers to the fact that from 2014 to 2022 when the ACA marketplace considered the affordability of an employer-sponsored health plan, it was based on just the cost for the employee. The cost to add family members was not taken into consideration. Due to this glitch, employer-based health insurance has been considered “affordable” if the coverage is affordable for the employee even if it is not for their family members—making those family members ineligible for the ACA PTC marketplace subsidies. The new rule now extends eligibility for the ACA marketplace subsidies to the family members of low-wage employees who were previously ineligible for the subsidies. The new rule goes into effect for the 2023 tax year, meaning family members who are offered unaffordable job-based family coverage will be newly eligible for subsidized marketplace coverage and will have the option of enrolling in affordable marketplace coverage during the open enrollment period which begins on November 1st.
The Final Rules Impose No New Requirements on Employers
The rules do not affect the liability of an applicable large employer (ALE) under the employer mandate because the rules do not change the affordability rules for employees (the employer mandate is only triggered when an employee receives a PTC, so when a family member purchases subsidized exchange coverage the employer is not penalized).
The affordability safe harbors based on self-only coverage under the employer mandate regulations continue to be available to employers (an employee’s family member may have an unaffordable offer of employer coverage even though the employee has an affordable self-only offer).
Nothing in the rules affects any information reporting requirements for employers, including on IRS Forms 1094/5-C and the IRS does not intend to revise Forms 1095-B or -C to require any new/additional data elements.
The rule is not expected to have any meaningful impact on employer premiums because a relatively small number of individuals are expected to move to the exchange and for those who do move, some will be higher risk, and some will be lower.
New Cafeteria Plan Status Change Rule – Applicable for Non-Calendar Year Plans
At the same time the “family glitch” final regulations were released, the IRS released Notice 2022-41 which allows employers who offer non-calendar year cafeteria plans to amend their plans to allow family members to leave the employer’s plan and enroll in an exchange plan mid-plan year (i.e., generally during the January exchange open enrollment period, which would be mid-plan year for a non-calendar year plan). Existing cafeteria plan rules do not allow the revocation of coverage when only related individuals (not the employee) become eligible to enroll in the exchange, so a related individual enrolled in a non-calendar year cafeteria plan would not be able to avoid either an overlapping period of coverage or a gap in coverage.
Employers are not required to offer this option but are permitted to do so. For an employer who chooses to amend their non-calendar year cafeteria plan to allow this option, the employee can be permitted to revoke coverage in a cafeteria plan beginning in 2023 so the family members can then enroll in marketplace coverage through a special enrollment period. Non-calendar year cafeteria plans may be amended to allow employees to prospectively revoke an election of family coverage under a group health plan (that is not a health FSA), provided the following conditions are satisfied:
One or more related individuals are eligible for a special enrollment period to enroll in exchange coverage, or one or more already-covered related individuals seek to enroll in exchange coverage during the Exchange’s annual open enrollment period; and
The revocation corresponds to the intended enrollment of the related individual(s) in exchange coverage for new coverage that is effective no later than the day immediately following the last day of the original revoked coverage. If the employee does not enroll in exchange coverage, the employee must elect self-only coverage (or family coverage including one or more already-covered related individuals) under the group health plan.
The cafeteria plan may rely on the reasonable representation of an employee that the employee and/or related individuals have enrolled or intend to enroll in exchange coverage for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked. Employers that want to permit employees to cancel family coverage mid-year must amend their cafeteria plans to formally adopt the change. Amendments must be adopted on or before the last day of the plan year in which the elections are allowed and the amendment may be effective retroactively back to the first day of the plan year, provided the cafeteria plan operates in accordance with the notice and participants are informed. However, in no event may an employer amend a cafeteria plan to allow an election to revoke coverage on a retroactive basis.
Employers considering adopting this cafeteria plan amendment will need to ensure that they have properly coordinated the potential modifications to the plan with their insurer/TPA and other vendors to determine their ability to accommodate the amendment. Conner Strong & Buckelew will continue to provide alerts and updates as new information becomes available on this and related topics. Please contact your Conner Strong & Buckelew account representative for assistance with the above updates. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.