The IRS has quietly revised guidance it previously issued giving plan sponsors with non-calendar year cafeteria plans the option to allow family members to drop from coverage mid-year if they become newly eligible for a marketplace premium subsidy under the new family ACA affordability calculation method, which eliminated the affordability “family glitch.” The newly revised guidance now extends to all cafeteria plans the option of allowing coverage to be dropped mid-year when employee dependents become covered under marketplace plans.

• The IRS published final regulations, finalizing the change to the affordability calculation for family members, on October 13, 2022.
• Employer calculations for the purpose of complying with ACA affordability regulations remain unchanged. The determination of affordability for ACA compliance purposes will still be based on the employee contribution for self-only coverage.
• Plans are permitted, but not required, to allow dependents to drop from employees’ plans when they become newly eligible for a Qualified Health Plan on an Exchange on or after January 1, 2023.
• Employers that wish to implement this change will need to formally amend their cafeteria plan documents to reflect the new election change opportunity.

Proposed Changes to ACA Affordability Calculation (originally sent April, 2022)

On April 5, 2022, the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations aimed at correcting the “family glitch” in the Affordable Care Act (ACA) affordability calculation method. This change was made in order to enable dependents in low-income families to more easily qualify for an exchange subsidy.

Background

• Under the ACA, certain low-income individuals are eligible for premium subsidies for medical insurance purchased on an exchange. However, the ACA’s current method of calculating a plan’s affordability is based on the cost of employee-only coverage and does not account for the cost of adding family members to the employer-sponsored plan.
• The current calculation method can create situations in which families cannot afford the expense of adding a spouse and/or children to an employee’s medical coverage, and also cannot afford to purchase coverage for the spouse/children on an exchange without a premium subsidy.

Proposed Changes

Impact to Employers