10 Quick Facts About the New IRS Final Health Premium 'Family Glitch' Regs

IRS officials note that adult children who are not dependents may prefer to stay on their parents' group coverage but can also apply separately to use premium tax credit subsidies to buy their own individual coverage.

Because those adult children already have access to premium tax credit subsidies, they are not affected by the spouses' and dependents' current lack of access to help with paying exchange plan premiums, officials say.

6. Spouses' coverage offers affect the affordability calculations.

Sometimes, a worker's employer might offer family coverage that's unaffordable for the worker's spouse.

The spouse might have an offer of affordable coverage from their own employer.

In that situation, the IRS will treat the worker's spouse as having access to affordable coverage, officials say.

A spouse who has an offer of affordable coverage from their own employer cannot use ACA subsidies to pay exchange plan premiums, officials say.

7. The IRS will probably work with other federal agencies on setting coverage affordability calculation rules for employers that use health reimbursement arrangements to provide cash that workers can use to buy their own individual health coverage.

A health reimbursement arrangement, or HRA, is a health account that an employer can use to supply pretax cash a worker can use to pay health care expenses.

The law that created a somewhat similar type of health account, the health savings account, defines HSA cash as the individual account holder's cash.

A worker who is willing to pay taxes and penalties can withdraw HSA cash and spend it on anything.

One tradeoff is that the worker must use an HSA together with a high-deductible health plan. A worker cannot use a stand-alone HSA to provide, or pay for, ordinary major medical coverage premiums.

Under the rules governing an HRA, any cash in an HRA belongs to the employer. But, because of the nature of HRA laws and regulations, a worker can use an HRA together with low-deductible or no-deductible health coverage.

Congress created a special type of HRA, the qualified small employer HRA, or QSEHRA, in the 21st Century Cures Act of 2016. Workers can use the employer cash in QSEHRAs to buy their own coverage.

Officials in the administration of former President Donald Trump created another "cash for coverage" HRA, the individual coverage HRA, or ICHRA, in regulations that were completed in 2019.

IRS officials acknowledge that the proposed and final regulations do not address coverage affordability calculations for ICHRAs. They suggest that IRS regulations cannot change the QSEHRA rules, because QSEHRA rules are spelled out in a statute.

The IRS will work with the U.S. Department of Health and Human Services and the U.S. Department of Labor to decide whether to issue HRA guidance, IRS officials say.

8. Affordable employer coverage that provides minimum value may not have to cover 60% of the value of the standard essential health benefits package.

To qualify as solid major medical coverage, an individual policy, or a small group policy sold through an ACA public exchange, must cover at least about 60% of the value of the standard essential health benefits package.

The EHB package includes benefits such as prescription drugs and rehabilitative services as well as hospitalization and physician services.

Under the new final regulations, employer coverage can meet minimum value standards by providing "substantial coverage of inpatient hospital services and physician services."

That interpretation could renew employer and insurer interest in offering "skinny plans," or low-cost plans designed to supply only minimum value coverage, and not coverage based on the EHB package.

Clients offered access to skinny plans may need extra help with analyzing their health coverage and using arrangements such as HSAs, flexible spending arrangements or supplemental health insurance policies to fill in coverage gaps.

9. Employers will not have to pay penalties if workers' dependents qualify for exchange plan subsidies.

Part of the ACA descends from older "pay to play" health insurance regulation efforts, or efforts to make large employers either provide a minimum level of health coverage or reimburse the government if workers end up using Medicaid or other public health programs.

The ACA version of the pay-to-play requirements, the "employer shared responsibility" provisions, require employers to pay penalties, in some cases, if they fail to provide a minimum level of affordable health coverage and workers end up qualifying for ACA public exchange plan subsidies.

Under the new coverage affordability calculation rules, spouses and dependents may be able to qualify for exchange plan subsidies, but, in those situations, the employers will not have to pay penalties, IRS officials say.

10. Employer cafeteria plans are getting guidance.

Some employers use Internal Revenue Code Section 125 cafeteria plans that workers and dependents can use to pay for coverage.

The IRS has responded to a commenter's concerns about a potential conflict between the affordability rules and the cafeteria plan rules by issuing guidance in IRS Notice 2022-41, officials say.

The guidance will affect any cafeteria plan with a plan year that starts on a date other than Jan. 1.

Normally, people in cafeteria plans cannot switch out of the plans in the middle of a plan year.

The new guidance will let a worker's spouses and dependents give up cafeteria plan coverage and switch to ACA exchange plan coverage in the middle of the cafeteria plan year.

(Image/Sura Nualpradid/Shutterstock)