In October, the IRS finalized regulations, which revised the method of determining
affordability under the Affordable Care Act (ACA) for an employee’s family members by considering whether the coverage offered by the employer to the employee and their family members is affordable. The final regulations are effective as of
December 12, 2022.
Additionally, the IRS released Notice 2022-41, which is effective for cafeteria plan elections effective on or after January 1, 2023, and facilitates the changes under the
IRS finalized regulations by permitting plans to update their change in status rules to allow employees to prospectively revoke their election under their health coverage (excluding health FSAs) for their family members who have enrolled or intend
to enroll in Marketplace coverage.
What does this mean to you?
There is no change to the ACA Employer Mandate for Applicable Large Employers (ALE). The existing affordability test does not change for the employee based on this final rule, which is still based on employee required contribution for self-only
coverage. An ALE must provide minimum essential coverage providing minimum value. Regarding affordability, in 2022, employer-sponsored coverage is deemed “affordable” if the cost of employee-only coverage is less than 9.61%
of household income. In 2023, the threshold (indexed annually by the IRS) drops to 9.12% and for ACA reporting purposes will still be calculated based upon employee only coverage for the lowest cost plan available.
Separately, in 2023, a family may be eligible for premium tax credits under ACA Marketplace coverage when covering their family, based on these IRS finalized regulations. This may make it easier for individuals to qualify for premium tax credits,
and some employers may see a shift where employees move to employee-only coverage in cases where their spouse/dependents could be newly eligible for subsidies through the Marketplace.
Note: This is general information of the new guidance, and employers/employees should reach out to appropriate legal/tax advisers if they have questions about how this might impact them specifically.