IRS Releases Proposed Change to ACA Affordability Calculation for Employee Dependents
On April 5, the IRS released a new Proposed Rule addressing the Affordability Calculations of the Affordable Care Act (ACA). Specifically, the rule proposes an affordability calculation for employee dependents that is separate from employees themselves. Since the ACA was adopted, the affordability calculation for any individual eligible for a group health plan was based on self-only coverage: if the employee’s contribution to the employer’s self-only health insurance coverage stayed below a certain threshold (9.5%, adjusted annually for inflation), the coverage would be considered “affordable”, and neither the employee nor the employee’s dependents would be eligible for a premium tax credit (PTC) to use in the individual health insurance marketplace.
The new Proposed Rule makes significant changes to this concept. The most important points of the new Proposed Rule are detailed below:
A dependent of an employee who is enrolled in a group health plan will no longer have “affordability” determined by the employee’s self-only coverage. Instead, a dependent’s offer of coverage will be considered “affordable” if the annual employee premium of the employer’s lowest-cost family coverage does not exceed 9.5% of their annual salary.
As with employees, a dependent who was not given an offer of “affordable” health coverage by the employer (using the new calculations) will be eligible for a PTC on the individual marketplace.
If a dependent of an employee has multiple offers of health coverage from different employers (either as an employee or a dependent), then that dependent will be considered to have an affordable offer of coverage if any one of those offers is considered “affordable” under the ACA.
The same Minimum Value standards that apply to employee offers of coverage will apply to dependent offers of coverage: the plan’s share of the total cost of benefits provided to dependents must be at least 60%.
It is important to note that this proposed rule made no mention of changes to affordability calculations as it pertains to employees; on the contrary, it affirmatively states that employee affordability will continue to be calculated by self-only health insurance premium amounts. These changes are set to begin in 2023.
The Notice and Comment period will run through June 7, 2022. You can read the proposed rule HERE.