FEBRUARY 2023HR TECH OUTLOOK9current ACA regulations only require that the employee be offered minimum value coverage. Spousal coverage is entirely optional, and a compliant health coverage offer to dependent children may be lower than minimum value. The proposed regulations clarify that employee family member coverage must now comprehensively meet the minimum value standard. Employer Penalties To the relief of employers, the proposed regulations do not expand employer mandate obligations or penalty risks. Employer penalties still hinge on whether the employee received a federal subsidy , not whether the spouse or dependent children received one. Effectively the new expanded affordability requirement only relates to federal tax subsidy eligibility. Employee Family Members The proposed rule also clarifies which family members are included for purposes of assessing whether coverage is affordable. Only the employee's family for tax purposes would be included in determining whether coverage is affordable. This may exclude adult children who are still eligible under a parent's employer plan, but are no longer a tax dependent. This could make determining affordability messy, as a dependent child's age suddenly becomes a key consideration. In addition, age is not the only factor to consider since IRS rules for determining tax dependents are based on a number of factors. This means that an 19-year-old child of one employee may no longer be a tax dependent, while a 24-year-old child of another employee remains a tax dependent. Additional clarification on this would be welcomed. Effective dateThe proposed rules include a standard comment period and will then be reissued following agency review (possibly reflecting revisions). The IRS announced final regulations should arrive by year-end and become effective starting in 2023. While we can't say for certain whether the proposed rules will ultimately go into effect, I estimate the odds of this happening to be about 75%. The IRS indicated they expected the proposed rules to be finalized by the end of 2022. While I believe final rules will be issued, they may promptly challenged on the grounds that the IRS has exceeded their authority. This argument is based on the fact that the proposed rules would dramatically increase the cost of Premium Tax Credits and not offset those costs by adding new employer penalties. Accordingly, only Congress has the authority to make these changes. My best guess is that a lawsuit challenging the IRS authority to implement these rules will be brought in a jurisdiction that is sympathetic to such challenges (likely Texas), and the court will then issue an injunction.Considerations for Employers Employers should review the rates they are charging employees for all tiers of coverage and determine whether these rates would be affordable. Employers should keep in mind that not all employees will have spouses or dependents. Thus, unaffordable offers of coverage for non-applicable tiers will not result in subsidy eligibility. Employers must also understand that unaffordable offers of coverage may result in decreases in participation, which may impact plan performance. A general decrease in enrollment may lower plan costs, employers must understand that inevitably both low risk and high-risk individuals will be among those who no longer enroll. Ultimately this could lead to adverse selection where the plan has a higher proportion of high-risk participants than they otherwise would. In turn, this could lead to poor performance of the plan. Employers may benefit from understanding the plans available in the individual markets where their employees are located. While exchange plans may be less expensive, the deductibles and out of pocket maximums of these plans may be many multiples of the current employer sponsored plan. Thus employees may save on premiums, but face massive out of pocket costs. Therefore unaffordable offers of coverage may lead to employees saving on premiums in the short term, while increasing exposure to catastrophic out of pocket costs. Conclusion Although this requirement does not alter ACA's current employer mandate structure, the rule shift is expected to complicate annual ACA reporting and raises the risk of potential reporting errors that could lead to reporting penalties. Employers should be aware of how these rules continue to evolve and may ultimately impact the employer's processes. About the author:Cory Jorbin is Chief Compliance Officer, West Region Employee Benefits for Hub International, where he provides day-to-day compliance support to account teams and clients of all sizes on ERISA, ACA, Cafeteria Plans, HIPAA, FMLA and related matters. He actively presents on related topics before employer groups, professional associations, client meetings and on webinars. Cory came to HUB through its acquisition of Laurus Strategies in 2014. He holds a Bachelor of Arts degree from DePaul University and a Juris Doctorate from Cleveland State University. Cory is a licensed attorney in the State of Illinois and is admitted to practice before the US Tax Court. Employers should review the rates they are charging employees for all tiers of coverage and determine whether these rates would be affordable
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