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Affordability of Employer Coverage for Family Members of Employees rule (2022)

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The Affordability of Employer Coverage for Family Members of Employees rule is a significant rule issued by the Internal Revenue Service (IRS) effective December 12, 2022, that amended regulations under the Internal Revenue Code governing eligibility for the premium tax credit. The IRS proposed amendments to regulations to conform with Executive Order 14009 in which the Biden administration aimed to promote strengthening the Affordable Care Act.[1]

HIGHLIGHTS
  • Name: Affordability of Employer Coverage for Family Members of Employees
  • Agency: Internal Revenue Service
  • Action: Final rule
  • Type of significant rule: Other significant rule

    • Timeline

    The following timeline details key rulemaking activity:

    • December 12, 2022: The final rule took effect.[1]
    • October 13, 2022: IRS published the final rule.[1]
    • June 6, 2022: IRS closed the comment period.[2]
    • April 7, 2022: IRS published a proposed rule and opened the comment period.[2]
    • January 28, 2021: President Joe Biden (D) issued Executive Order 14009: Strengthening Medicaid and the Affordable Care Act which directed the Secretary of the Treasury to review regulations regarding their compliance with the Biden administration's aim to strengthen the Affordable Care Act.[3]

    Background

    The U.S. Department of Health and Human Services (HHS) published regulations on February 27, 2015, establishing "that an eligible employer-sponsored plan provides minimum value only if, in addition to covering at least 60 percent of the total allowed costs of benefits provided under the plan, the plan benefits include substantial coverage of inpatient hospital services and physician services," according to the IRS' proposed rule. In response to the HHS regulations, The U.S. Department of the Treasury proposed regulations on September 1, 2015, to incorporate the minimum value rule under Section 36B of the Internal Revenue Code. The Internal Revenue Code of 1986 is a federal law that codifies federal tax laws.[2][4]

    President Joe Biden (D) on January 28, 2021, issued an executive order that directed the Secretary of the Treasury to review regulations regarding their compliance with the Biden administration's aim to strengthen the Affordable Care Act (ACA). The IRS reviewed the regulations regarding the affordability of employer coverage for family members of employees and determined that the regulations did not conform to the purpose of the ACA. In response, the IRS proposed amended regulations on April 7, 2022.[2][3]

    Summary of the rule

    The following is a summary of the rule from the rule's entry in the Federal Register:

    “ This document contains final regulations under section 36B of the Internal Revenue Code (Code) that amend the regulations regarding eligibility for the premium tax credit (PTC) to provide that affordability of employer-sponsored minimum essential coverage (employer coverage) for family members of an employee is determined based on the employee's share of the cost of covering the employee and those family members, not the cost of covering only the employee. The final regulations also add a minimum value rule for family members of employees based on the benefits provided to the family members. The final regulations 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 PTC for the coverage.[1][5] ”

    Summary of provisions

    The following is a summary of the provisions from the rule's entry in the Federal Register:[1]

    “ The final regulations revise § 1.36B–2(c)(3)(v)(A)(2) to provide a separate affordability test for related individuals based on the cost to the employee of family coverage. The final regulations do not change the affordability test for the employee. When a family applies for Exchange coverage, the Exchange will ask for information concerning which of the family members are offered coverage by their own employer, and the family members to whom the employer's coverage offer extends. When an applicant for whom APTC is otherwise allowed indicates that their employer offers them coverage, the Exchange will ask for the premium for self-only coverage for the applicant and make an affordability determination for the applicant on that basis. When an applicant for whom APTC is otherwise allowed indicates an offer of coverage through an employer of another family member, the Exchange will ask for the premium for family coverage and make an affordability determination for the applicant on that basis. It is therefore possible that family members would be eligible for APTC but the employee would not. In this case, if the entire family chooses to enroll in Exchange coverage with APTC, the APTC would be paid only for coverage of the employee's family members but would not be paid for coverage of the employee.[5] ”

    Significant impact

    See also: Significant regulatory action

    Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.

    Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]


    The text of the rule states that OMB deemed this rule significant, but not economically significant:

    “ EOs 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.


    These final regulations have been designated as subject to review under E.O. 12866 pursuant to the 2018 MOA between the Treasury Department and OMB regarding review of tax regulations.[5]

    		”

    Text of the rule

    The full text of the rule is available below:[1]

    Responses

    The following section provides a selection of responses to the rule issued by IRS to amend regulations governing eligibility for the premium tax credit under the Internal Revenue Code.

    The Urban Institute published a policy brief to analyze the IRS' proposed rule and its ability to address concerns with eligibility for premium tax credits which it refers to as the family glitch:[6]

    “ The biggest impact of changing the family glitch would be to make health coverage more affordable for hundreds of thousands of families. Not all the families gaining PTC eligibility would be better off switching, but we estimate that the families who do switch from family employer coverage would save just over $400 per person in premiums on average, accounting for the tax advantage of financing health coverage through an employer. Switching families with incomes below 200 percent of FPL would save $580 per person, while switching families at higher incomes would save $311 per person.[5] ”


    Louise Norris, a health insurance broker, wrote an article about the rule and its impact on eligibility concerns for premium tax credits or the family glitch:[7]

    “ The family glitch relied on minuscule bits of text within the ACA rather than the broad scope and intent of the law. The overarching goal of Obamacare was to expand access to health insurance, and to make it affordable. Yet the 2013 rule (used for coverage effective from 2014 through 2022) on what constitutes 'affordable' employer-sponsored coverage did nothing to make health insurance affordable or accessible for low- and moderate-income families whose employers didn’t subsidize a significant portion of dependents’ coverage. The Biden administration’s goal was to change that. The new IRS rule change highlights the fact that the goal of the ACA is to make coverage more accessible and affordable, and that the new rules are necessary in order to make that happen.[5] ”


    The Foundation for Government Accountability published a paper opposing the rule, arguing that the amended regulations were inconsistent with the Affordable Care Act:[8]

    “ The ObamaCare statute is clear: Affordability of employer coverage is based on self-only plans. And despite the media coverage of the so-called 'family glitch,' this has been law for the past decade. When ObamaCare became law more than a decade ago, the IRS issued a rule that was consistent with the language of the statute. Upon further review as requested by the Government Accountability Office, the Department of the Treasury reaffirmed the position of the IRS.


    Importantly, the 'family glitch' is not an accident, and the law has not changed since the IRS rule went into effect. Despite the efforts of welfare expansion advocates over the years, new legislation has never been enacted. In fact, the House of Representatives passed H.R. 1425 in 2020, which would have changed the Internal Revenue Code to make family coverage the metric for affordability, but the bill was rejected by the Senate.[5]

    		”


    Katie Mahoney, vice president of health policy at the U.S. Chamber of Commerce, wrote a letter critiquing the proposed regulations arguing that the change would allow healthy individuals to qualify for ACA coverage, according to SHRM:[9]

    “ Individuals who choose to switch from their employer plan to the ACA market will likely be younger and healthier, opting for the low or no-cost premiums offered under ACA plans, even if it means higher deductibles and less rich benefits ... The result will be adverse selection in employer markets—the healthy will leave employer coverage for ACA coverage while those with health conditions will stay on richer employer coverage. The result will no doubt further increase premiums and exacerbate problems in labor markets.[5] ”

    See also

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Federal Register, "Affordability of Employer Coverage for Family Members of Employees," October 13, 2022
    2. ↑ 2.0 2.1 2.2 2.3 Federal Register, "Affordability of Employer Coverage for Family Members of Employees," April 7, 2022
    3. ↑ 3.0 3.1 Federal Register, "Strengthening Medicaid and the Affordable Care Act," February 2, 2021
    4. ↑ United States Census Bureau, "Title 26, U.S. Code," accessed October 27, 2023
    5. ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    6. ↑ Urban Institute, "Changing the 'Family Glitch' Would Make Health Coverage More Affordable for Many Families," May 2021
    7. ↑ healthinsurance.org, "IRS regulations fix the ACA's 'family glitch' as of 2023," April 19, 2023
    8. ↑ FGA, "A Glitch in the System: How the Biden Administration Unilaterally Changed Health Care Laws," April 10, 2023
    9. ↑ SHRM, "Final Rule Lessens Family Members' Dependence on Employer Health Plans," October 14, 2022
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