Sarah Borders, CEBS October 26, 2022 4 min read

Final Rule Issued to Close ACA's "Family Glitch"

On October 11, 2022, the IRS issued final regulations (TD 9968) that are largely unchanged from the proposed regulations issued back on April 5, 2022.
Stemming from a January 2021 executive order, the IRS released proposed and now final rules to alter the current interpretation regarding eligibility for premium tax credits for family members. This rule will generally close up the ACA’s problematic “family glitch” by extending premium tax credit subsidies to family members, even if the employee is offered “affordable” employer-sponsored coverage. Currently, family members of employees who are offered “affordable” coverage by their employers are automatically ineligible for financial assistance through the Exchanges, regardless of the amount employers contribute (or don’t contribute) to the dependent costs of coverage. 
Specifically, this rule adopts a separate test for family members that bases affordability on the employee’s contribution towards family coverage. For example, an offer of employer-provided coverage would be affordable for family members if the portion of the annual premium that an employee had to pay for family coverage (meaning, the employee’s required contribution towards family coverage) were less than 9.5% (as indexed) of household income. The Exchanges would have to determine whether the employee has an offer of “affordable” single coverage, whether the family members have an offer of affordable family coverage, and then if any of those family members have an offer of affordable coverage from some other employer.
The rule also keeps the current minimum value threshold for employees but creates a separate minimum value test for family members. This change further clarifies whether job-based coverage for family members does or does not meet minimum value standards.
This final rule does not directly impact an applicable large employer’s responsibility under the employer mandate to offer “affordable” coverage only to employees. Employer mandate penalties are triggered when an employee receives a premium tax credit through the Exchange. However, if marketplace premium tax credits are extended only to the family members of employees who are not offered affordable job-based family coverage, it would not affect the PTC eligibility of employees and thus would likely not implicate the employer mandate. In other words, employers would not have to adjust their contribution structures to accommodate affordability for family members to avoid employer mandate penalties.
The final rules apply for tax years starting after December 31, 2022. The Marketplace open enrollment period for the 2023 plan year runs from November 1 to January 15. So, for taxable years 2023 and beyond, the family glitch will be closed, and dependents who are offered unaffordable employer-sponsored family coverage could be eligible for premium tax credits through the Exchange starting for coverage purchased in 2023.
Final Rule:


Sarah Borders, CEBS

Principal, Benefits Compliance Solutions. Sarah has spent the last 15 years in the employee benefits industry, has numerous designations and serves on NAHU’s Employer Working Group Subcommittee and is an active board member of Austin AHU. She recently stepped down as Vice President of Benefits Compliance at one of the nation's largest brokerage firms to start her own compliance consulting practice. Her designations include an active license with the Texas Department of Insurance, CEBS (Certified Employee Benefits Specialist), Certified Health Care Reform Professional, HIPAA certification and Health Care Service Associate. She holds an MBA from Texas A&M Corpus Christi and a BA from University of Incarnate Word. Her consulting firm, Benefits Compliance Solutions, partners with employers to identify unknown risks and avoid hundreds of thousands of dollars in fines and lawsuits from failure to comply with their healthplan obligations.