Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer minimum essential health care coverage that’s affordable and provides minimum value to full-time employees and their dependents. An ALE may incur a penalty if at least one full-time employee receives a premium tax credit for buying coverage through a Health Insurance Marketplace (commonly known as an “exchange”).
Recently, the IRS finalized regulations that change the eligibility standards for the premium tax credit. Beginning in 2023, affordability of employer-sponsored coverage for an employee’s family members will be based on the employee’s cost for family coverage, rather than the cost of employee-only coverage. The tax agency took this step to fix what was referred to as “the family glitch.”
The IRS also issued related guidance allowing participants in only non–calendar-year cafeteria plans to revoke their elections for family health coverage midyear to allow one or more family members to enroll in a qualified health plan (QHP) through a Health Insurance Marketplace. This guidance has been revised.
Conditions must be satisfied
According to the revised guidance, any cafeteria plan — regardless of plan year — can be amended to allow prospective midyear election changes from family coverage to employee-only coverage under a group health plan that’s not a health flexible spending account and provides minimum essential coverage. However, the following two conditions must be met:
- One or more related individuals are eligible for a special enrollment period to enroll in a QHP through a Health Insurance Marketplace, or one or more already-covered related individuals seek to enroll in a QHP during the Marketplace’s annual open enrollment period, and
- The election change corresponds to the intended QHP enrollment for new coverage effective beginning no later than the day immediately following the last day of the revoked coverage.
Plans may rely on an employee’s reasonable representation regarding enrollment or intended enrollment in a QHP. The guidance applies to elections that are effective on or after January 1, 2023.
Amendments must be adopted on or before the last day of the plan year in which the changes are allowed. An amendment may be effective retroactively to the first day of that plan year if the plan operates in accordance with the guidance and participants are informed of the amendment. However, amendments for a plan year beginning in 2023 can be adopted on or before the last day of the plan year beginning in 2024.
The new family-member enrollment event is optional, but employers that sponsor calendar-year cafeteria plans have been granted the flexibility to offer it under their plans. Although plan amendments may be adopted retroactively as provided in the guidance, election changes to revoke coverage retroactively aren’t permitted. Our firm can help you manage the tax and information-reporting complexities of offering health care coverage.