On October 11, 2022, the Internal Revenue Service (IRS) and the Department of the Treasury issued final regulations revising a 2013 interpretation of premium tax credit eligibility for families. This change fixes the so-called “family glitch” by newly extending eligibility for marketplace subsidies to many dependents of low-wage workers who were previously ineligible. Before, eligibility for premium tax credit depended on whether the premium for single group medical coverage offered to an employee was unaffordable. Now, it will be based on whether the premium for family group medical coverage is unaffordable.

The new final regulations mean that family members who are offered unaffordable employer group family coverage will be newly eligible for subsidized marketplace coverage. Though not all of the newly eligible are expected to do so, the final regulations ensure that eligible family members—primarily children and women—have the option of enrolling in affordable marketplace coverage. 

Most of the rule goes into effect for the 2023 tax year, meaning family members who qualify can enroll in subsidized marketplace coverage for 2023. The IRS has coordinated with HHS to ensure that federal and state marketplaces can implement these changes ahead of the 2023 open enrollment period, which begins on November 1. The family glitch fix comes at a time of record-high marketplace enrollment, a record-low uninsured rate, and more generous marketplace subsidies thanks to an extension of the American Rescue Plan Act’s enhanced subsidies by the Inflation Reduction Act.

The final regulations will not affect liability under the employer mandate, a fact confirmed by the IRS. It is because the employer mandate requires certain large employers to offer coverage to employees and dependents. But penalties for violating the mandate are triggered only when an employee receives premium tax credits through the marketplace. The final regulations only extend premium tax credits to the family members of employees who are not offered affordable group family group medical coverage. It does not affect the eligibility of employees and thus does not implicate the employer mandate.

Please remember if an employee is offered affordable single-group medical coverage at work, but family coverage is not affordable based on family income, only the spouse and children would be eligible for marketplace subsidies. The determination of affordability for the employee is based on the premium for single-group medical coverage.

This change could affect an employer’s ability to offer family group medical coverage to lower-paid employees in the future.

For a copy of the final regulations, please click on the link below: 

https://www.federalregister.gov/documents/2022/10/13/2022-22184/affordability-of-employer-coverage-for-family-members-of-employees 

If you have any comments or questions regarding any of the above information, please do not hesitate to call me at (708) 717-9638 or e-mail me at larry@larrygrudzien.com.