When the Affordable Care Act (ACA) was enacted more than a decade ago, it offered provisions for allowing eligible employees to forgo employer-sponsored health plans in favor of ACA Marketplace plans. But the way the law was structured created what has since been known as the ‘family glitch’. That glitch has finally been resolved. Its resolution is both good and bad, depending on your perspective.
If you are not yet aware of how the glitch was resolved, we encourage you to educate yourself on the matter. Whether your company offers traditional health benefits or a low-cost alternative to medical insurance, compliance is still mandatory. You need to fully understand the resolution and its potential impacts.
Family Glitch Basics
Let us start by discussing the family glitch itself. In its original iteration, the ACA allowed employees to forgo employer-sponsored health plans in favor of Exchange plans if the former were deemed unaffordable. So if John Smith could not afford his company’s health plan, he could buy a cheaper plan on a federal marketplace. So where’s the glitch?
Rules for determining affordability were based on the cost for individual coverage. The cost of family coverage was not considered. So even if John could not afford family coverage, he was not allowed to participate in the ACA Marketplace if individual coverage were considered affordable.
New Rules for Determining Affordability
Last October, the federal government published new rules for determining ACA Marketplace eligibility. Calculating what are known as Premium Tax Credits (PTCs) is now based on the actual insurance product. If John needs family coverage, affordability is based on the cost of that coverage, not an individual plan.
As things now stand, John qualifies for family coverage under a Marketplace plan if the total cost of his employer’s family plan exceeds 9.12% of his total household income.
It’s Good for Employees
The rule change is obviously good for employees. It opens the door to more affordable Marketplace plans some employees were previously ineligible for. In the long run, this means employees stand to save some money on their health plans. They also have another option if their employer’s plans stretch the budget too thin.
The rule could potentially be good for employers in the sense that every employee who elects to go to the Marketplace is one less employee that needs to be covered under the employer’s plan. But there is a bad side to the rule change for employers.
A Trigger for Compliance Audits
The bad news for employers is that the rule change could ultimately act as a trigger for compliance audits. Here’s how: when an employee requests a PTC from a federal or state exchange, it triggers an IRS action that cross-references the request against records kept by the individual’s employer. Such requests could raise suspicions about the employer’s compliance.
Changing the rules should lead to more participation in the ACA Marketplace. It should lead to greater utilization of PTCs to make health coverage more affordable. But the downside is that greater utilization of PTCs and marketplace plans could ultimately lead to more aggressive compliance actions by the IRS.
No matter how you meet the ACA’s employer mandate, you need to be aware of the rule change and how it affects both your company and your employees. Now is the time to review your compliance policies to ensure that everything is in order. Cross all your T’s and dot all your I’s just in case the IRS finds a reason to look at why some of your employees are choosing Marketplace plans.
