The Internal Revenue Service (IRS) announced updated rules designed to fix the Affordable Care Act (ACA) “Family Glitch”. The change impacts family health coverage options for hundreds of thousands of lower-income Californians currently enrolled in group family coverage.
The updated rules go into effect for 2023 and change how premium subsidies eligibility (advanced tax credits) are calculated for families on the ACA individual marketplaces (Covered California for California residents). Currently, if a family member has employer coverage, subsidy eligibility for other family members are calculated based on the affordability of the employee coverage, not the affordability of the family coverage.
There is often a big difference as employer premium contributions are often less for family coverage compared to employee coverage. With the updated rules for 2023 coverage onwards, if a family member has employer coverage, the Covered California subsidy eligibility calculation for their family members will be based on affordability of family coverage.
It is widely expected that many family members currently enrolled in family coverage in group plans will now be eligible for Covered California individual coverage subsidies, which creates an additional factor in their decision to enroll their dependents on their group plan.
The updated rules do not affect employer liability under the ACA large employer mandate, therefore offering “affordable” and “minimum essential coverage” still applies.
Employers with non-calendar year plans, including health reimbursement arrangements (HRAs), and Section 125 cafeteria plans, will want to review how the updated rules impact family member ability to disenroll mid-plan year.