IRS Finalizes Change to Family Coverage Affordability Rules

This month, the IRS released a final rule that changes the eligibility rules for the premium tax credit (PTC).

This video explains the basics of the eligibility change.

• This credit is available to eligible individuals who purchase health insurance coverage through the Exchange. Individuals are not eligible for the PTC if they have access to employer-sponsored health coverage that is affordable and provides minimum value.

• The rule provides that affordability of employer-sponsored coverage for family members is determined based on the cost of family coverage.

• The final rule’s changes apply to taxable years beginning after Dec. 31, 2022.

The Change

Under the final rule, an employer-sponsored plan is affordable for family members if the portion of the annual premium the employee must pay for family coverage (the employee’s required contribution) does not exceed 9.5% (as adjusted annually) of household income. An employee’s required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of themselves and all other individuals in the employee’s family. The final rule also adds a minimum value rule for family members based on the benefits provided to the family members.

Impact

Effective for 2023, more family members will likely be eligible for the PTC for coverage purchased through the Exchange. However, the final rule does not change the affordability rules for employees. Employees will continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage does not exceed 9.5% (as adjusted) of household income. Therefore, an employee’s family member may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage.