714.716.4060 Login
Let's Talk

IRS Issues Proposed Rules to Fix the Affordability “Family Glitch”

IRS Issues Proposed Rules to Fix the Affordability “Family Glitch”

 

April 15, 2022  

 

The IRS has issued proposed rules that would change the way employer-sponsored coverage would be treated when determining if a family is eligible for premium tax credits (PTC) when purchasing individual health insurance through a public Marketplace. The proposed rules would fix the so-called “family glitch” that currently requires employer plan affordability to be based on the employee-only cost for coverage, while not taking into consideration the cost for the employee’s family to participate. The change would allow more spouses and dependents to qualify for premium tax credits toward the cost of individual health insurance coverage purchased through a public exchange.  

 

Background

An individual is eligible for a premium tax credit (or tax subsidy) to help pay the monthly premiums for individual coverage purchased on a public exchange if all of the following are true:

  • Individual is not eligible  for Medicaid, CHIP or Medicare;
  • Individual is not enrolled in other minimum essential coverage; and
  • Individual is not eligible for employer-sponsored group health plan coverage that provides minimum value and is affordable.

 

Individuals who are offered (or eligible for) minimum value, affordable coverage under an employer-sponsored group health plan are not eligible for a tax subsidy when purchasing individual health insurance through a public exchange. In general, a plan provides “minimum value” if the actuarial value of the benefits is at least 60%. Coverage is “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage, 9.61% in 2022, of the employee’s household income. If the employee-only coverage is deemed “affordable” by this standard, the coverage is considered affordable for spouses and dependents as well, regardless of how much additional the required employee contribution amount is for family coverage.  

 

In January 2021, President Biden issued an Executive Order directing the Secretary of the Treasury to review all existing regulations to determine whether any are inconsistent with the policy to protect and strengthen the ACA (Affordable Care Act). The Secretary of the Treasury was also directed to examine policies and practices that may reduce the affordability of coverage or financial assistance for coverage, including for dependents. While performing this review, it was tentatively determined that the rules around affordability for family coverage under an employer-sponsored group health plan are inconsistent  with the overall purpose of the ACA to expand access to affordable healthcare coverage. Therefore, the IRS has proposed making changes to what coverage is considered to provide minimum value and what coverage is affordable for purposes of determining eligibility for premium tax credits for coverage purchased through a public exchange.  

 

Affordability – Proposed Changes

The proposed rules would allow for the affordability of coverage provided under an employer-sponsored plan to be determined for the employees’ spouses and dependents by the employees’ required contribution for family coverage, not employee-only coverage cost. The coverage for these related individuals would be affordable only if the employees’ costs for enrolling the employee and family members does not exceed 9.61%, in 2022, of an employee’s household income. An individual with offers of coverage from multiple employers, either as an employee or a related individual, has an offer of affordable coverage if at least one of the offers is affordable. The proposed regulations include several examples to illustrate how the change would impact affordability.   NOTE: It is possible that a spouse or dependent of an employee may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of employee-only or self-only coverage.  

 

Minimum Value – Proposed Changes

In addition to providing 60% or better actuarial value, previous guidance indicated that plan benefits must also include substantial coverage of inpatient hospital and physician services. This was previously set forth in proposed rules by the IRS, but not finalized. The IRS is proposing the same requirements here and hoping to formalize them once these rules are finalized.  

 

Section 4980H Employer Shared Responsibility Rules and Employer Penalties

Employers are not required to offer affordable coverage to spouses and dependents. The proposed changes will not affect current rules that determine if an employer is offering affordable coverage to their employees for purposes of employer penalties under Section 4980H employer shared responsibility rules (commonly referred to as the “employer mandate”). Employers will continue to use the employee’s cost for single coverage to determine “affordable” employer contribution rates and for use with the IRS employer affordability safe harbors.  

 

Summary

The proposed changes would significantly increase the number of people eligible for subsidized individual coverage. It would principally impact spouse and dependents of employees who are eligible for affordable employer sponsored single coverage, but where the family contribution is deemed unaffordable under the new rules. The changes are not effective until finalized and published in the federal register. Until that time, affordability will continue to be determined based on the employee’s cost of self-only coverage, but it appears the rules would go into effect in time for the 2023 tax year.  

 

For a summary copy of this upcoming IRS proposed change, click here: IRS Proposes Change to Family Coverage Affordability Rules .

For clarity & assistance with finding out how these changes will affect you and your employees, reach out to Mike Young at MY-Employee Benefits Plus at mike@my-EBP.com or 714.716.4060.

Upcoming ACA Reporting Deadlines Fast Approaching-March 2, 2022

Upcoming ACA Reporting Deadlines Fast Approaching on March 2, 2022

February 4, 2022

Affordable Care Act (ACA) reporting under Section 6055 and Section 6056 for the 2021 calendar year is due in early 2022. Specifically, reporting entities must:

  • Furnish statements to individuals by March 2, 2022; and
  • File returns with the IRS by Feb. 28, 2022 (or March 31, 2022, if filing electronically).


Penalties may apply for reporting entities that fail to file and furnish required returns and statements by the deadline.


A proposed rule issued on Nov. 22, 2021, extended the annual furnishing deadlines under both Sections 6055 and 6056 for an additional 30 days. This rule is in proposed form and has not been finalized. However, reporting entities may rely on the proposed rule for 2021 reporting, even before it is finalized. Reporting entities are generally encouraged to furnish statements to individuals as soon as they are able.

Action Steps


The IRS generally encourages reporting entities to furnish statements as soon as they are able.


Although penalty relief has been provided in prior years for reporting entities that make good faith efforts to comply with the reporting requirements, this penalty relief is not available for reporting for tax year 2021 and subsequent years. This good faith relief was intended to be transitional to accommodate public concerns with implementing new reporting requirements under the ACA. These reporting requirements have now been in place for six years, and the IRS has determined that transitional relief is no longer appropriate. Therefore, the IRS has discontinued the transitional good faith relief after tax year 2020.

Section 6055 and 6055 Reporting

  • Section 6055 applies to providers of minimum essential coverage (MEC), such as health insurance issuers and employers with self-insured health plans. These entities generally use Forms 1094-B and 1095-B to report information about the coverage they provided during the previous year.
  • Section 6056 applies to applicable large employers (ALEs)¬¬—generally, those employers with 50 or more full-time employees, including full-time equivalents, in the previous year. ALEs use Forms 1094-C and 1095-C to report information relating to the health coverage that they offer (or do not offer) to their full-time employees.

The ACA’s individual mandate penalty was reduced to zero beginning in 2019. As a result, the IRS has been studying whether and how the Section 6055 reporting requirements should change, if at all, for future years. Despite the elimination of the individual mandate penalty, Section 6055 reporting continues to be required. A proposed rule described below would provide that individual statements do not have to be furnished if certain requirements are met. However, this proposed rule has not been finalized.

Annual Deadlines

Generally, forms must be filed with the IRS annually, no later than Feb. 28 (March 31, if filed electronically) of the year following the calendar year to which the return relates. In addition, reporting entities must also furnish statements annually to each individual who is provided MEC (under Section 6055) and each of the ALE’s full-time employees (under Section 6056). Individual statements are generally due on or before Jan. 31 of the year immediately following the calendar year to which the statements relate.

Extended Furnishing Deadlines

The proposed rule provides an automatic extension of 30 days to furnish statements (Forms 1095-B and 1095-C) to individuals under Sections 6055 and 6056. Because the extension is automatic, reporting entities do not need to formally request an extension from the IRS.


Under the proposed rule, statements furnished to individuals will be timely if furnished no later than 30 days after Jan. 31 of the calendar year following the calendar year to which the statement relates. If the extended furnishing date falls on a weekend day or legal holiday, statements will be timely if furnished on the next business day.


This rule is in proposed form and has not been finalized. However, reporting entities may rely on the proposed rule for 2021 reporting, even before it is finalized.

Impact on Filing Deadline

The proposed rule does not extend the due date for filing Forms 1094-B, 1095-B, 1094-C or 1095-C with the IRS. This due date remains Feb. 28, if filing on paper, or March 31, if filing electronically. Because the due dates are unchanged, potential automatic extensions of time for filing information returns are still available under the normal rules by submitting Form 8809. Additional extensions of time to file may also be available under certain hardship conditions.

Alternative Method of Furnishing Under Section 6055

The individual mandate penalty has been reduced to zero, beginning in 2019. As a result, an individual does not need the information on Form 1095-B in order to calculate his or her federal tax liability or file a federal income tax return. However, reporting entities required to furnish Form 1095-B to individuals must continue to expend resources to do so.


For all years that the individual mandate penalty is zero, the proposed rule provides an alternative manner for a reporting entity to furnish statements to individuals under Section 6055. Under this alternative manner of furnishing, the reporting entity must post a clear and conspicuous notice on its website stating that responsible individuals may receive a copy of their statement upon request. The notice must include an email address, a physical address to which a request may be sent and a telephone number to contact the reporting entity with any questions. Reporting entities must generally retain the website notice until Oct. 15 of the year following the calendar year to which the statement relates.


ALEs that offer self-insured health plans are generally required to use Form 1095-C, Part III, to meet the Section 6055 reporting requirements, instead of Form 1095-B. Self-insured ALEs may use this relief for employees who are enrolled in the ALE’s self-insured plan and who are not full-time employees of the ALE, as well as for nonemployees (such as former employees) who are enrolled in the self-insured plan. However, ALEs may not use the alternative method of furnishing for full-time employees who are enrolled in the self-insured plan.


If, in the future, the individual mandate penalty is not zero, the IRS anticipates that reporting entities will need adequate time to develop or restart processes for preparing and mailing paper statements to responsible individuals. If the individual mandate penalty is modified in the future, the IRS anticipates providing guidance, if necessary, to allow sufficient time for reporting entities to restart the reporting process.

Elimination of Good Faith Transition Relief from Penalties

For each prior year of reporting, the IRS has provided transitional good faith penalty relief for reporting entities that could show that they made good faith efforts to comply with the information reporting requirements. However, the transitional good faith relief from penalties for reporting incorrect or incomplete information on information returns or statements is not available for reporting for tax year 2021 and subsequent years.


This good faith relief was intended to be transitional to accommodate public concerns with implementing new reporting requirements under the ACA. These reporting requirements have now been in place for six years, and the IRS has determined that transitional relief is no longer appropriate. Therefore, the IRS has discontinued the transitional good faith relief after tax year 2020.

Conclusion

ACA Reporting is complex. For clarity & assistance with dealing with the complex ACA reporting deadlines, reach out to Mike Young at MY-Employee Benefits Plus at mike@my-EBP.com or 714.716.4060.

And for a copy of this news brief, click here: Upcoming ACA Reporting Deadlines .

How the Presidential Executive Order affects AHPs & Decision to End Cost Sharing Reduction Payments (CSRs)

October 2017 

President Trump signed an Executive Order in October 2017 aimed at changing the Affordable Care Act (“ACA”). The Order, titled “Promoting Healthcare Choice and Competition Across the United States”, does not take any specific action; instead, it instructs the Secretaries of the Labor, Health and Human Services, Treasury (the “Agencies”) to consider proposing regulations or revising existing guidance in three key areas: Association Health Plans (“AHPs”), Short Term Limited Duration Insurance (“STLDI”)and Health Reimbursement Arrangements (“HRAs”).  In addition, the administration confirmed that it will potentially not make the cost sharing reduction payments (“CSRs”) to insurers under the ACA regulations.

The bottom line is that there is no immediate impact to employers from either the Executive Order or the cost sharing reduction payments decision. Nevertheless, both actions could have significant impacts down the road. The Executive Order and the potential pending implications of ending the CSRs for employers is discussed in more detail below.

 

Association Health Plans (“AHPs”)

Currently, AHPs are plans formed by associations of businesses in the same line of business that offer insurance coverage to association members as a single plan.  Before the existence of the ACA, the idea was that the association, as one large purchaser, would be exempt from the small employer rating rules and mandates, thus providing more flexibility in design as well as greater pricing leverage than each of its members separately.

After the implementation of the ACA, AHPs became subject to each state’s small group rating and plan design mandates, unless the association was treated as the only plan sponsor.  However, most AHPs were treated as a group of separate plans sponsored by each of the members. Those types of AHPs were largely disbanded in 2014 when the new rating rules for small groups under the ACA became effective because one of the key advantages of the AHP, being the exemption from the  small group rating rules, had been taken away. Small employers (those with less than 50 employers, or 100 or less employees in some states like California) were the most impacted, as they were forced to purchase coverage under the small group market new regulations.

The Executive Order directs the Secretary of Labor, within 60 days of the notice, to consider revising existing rules to expand access to AHPs. An expansion of AHPs could result in additional insurance options for small employers. It may also potentially lead to the ability to purchase insurance across state lines.

 

Ending Cost-Sharing Reduction Payments (CSR’s)

In addition to the Executive Order, the Trump Administration has also said they will potentially end CSRs. The CSRs are paid to insurers in the individual market to help reduce the cost-sharing (i.e. plan deductibles, co-pays, etc.) for certain lower income individuals who qualify. Even without these payments, the ACA still requires that qualifying individuals receive plans with reduced cost sharing. Ending the cost sharing reduction payments simply means the government is not reimbursing the insurers for these CSRs. As a result, insurers will potentially recoup the additional costs through increased premiums.

While ending cost sharing reduction payments doesn’t directly impact employer plans, it could have an indirect impact.  Employees who were purchasing individual policies (with or without CSRs) may find coverage from their employers more attractive, if available, due to the potential increase in the individual premiums to cover the loss of CSR payments.

In addition, individuals who see high increases in their individual premiums as a result may choose to go without insurance.  This could increase emergency room visits and other uncompensated healthcare by providers. Thus potentially resulting in increased premiums for employers as healthcare providers increase prices to make up for their losses.

 

The Takeaway Conclusion

While the broader ACA repeal and replace efforts have stalled over the past months, the President still has the ability to influence overall healthcare policy.  For the time being, the Executive Order does not immediately change any compliance obligations.  Therefore, employers should continue with ACA compliance and wait and see. There is nothing else to do until the Secretaries propose regulation or revise guidance under the Executive Order.

Regarding the cost sharing reduction payments, while there is no immediate employer impact, ending those payments could result in lawsuits from the state Attorneys General.  It may also force Congress into action to address the funding of CSRs as well as other aspects of the ACA.