Administrators, please do us a favor. Forward this to your school business officials right now. We have two reasons for making this request
First, we’ve set a date for our 2022 PPACA Reporting Workshop. It’ll take place December 14, 2022, from 9 AM to noon central time, and it will be recorded and accessible afterwards if you (and/or your business officials) can’t make it live. You can register here. This webinar will be useful for all school business officials who have PPACA reporting obligations.
Second, we’re hoping to save you a lot of angst and confusion about some recent regulations released by the IRS regarding “affordability” calculations of insurance offers under PPACA/Obamacare and their impact on compliance. We’ve received several questions on what, exactly, this means. We’re hoping this post helps clarify things.
What regulations? On October 11, 2022, the IRS released these regulations. The same day, President Biden released this statement. In summary, the regulations are designed to “fix” what has been called the “family glitch” under PPACA. It’s called a “glitch” because, ironically, the better the offer of coverage from employer to employee, the fewer options the employee’s family may have to find reasonably priced insurance elsewhere. We’ll discuss this below. From the headlines, it is hard to understand what happened and what impact it may have on school district and service agency compliance.
The Good News. You do not need to change your insurance offers because of these regulations. Nor are you going to be subjected to additional tax penalties because of these regulations.
Whether you’re a seasoned veteran or novice to the PPACA employer compliance game, you know one of the key questions we answer during reporting every year is whether your insurance offers to your “full time” employees are “affordable,” and whether your offer allowed your employees to “enroll” their families in your plan. If a full-time employee receives an offer that is not “affordable” and that employee obtains insurance and premium tax credits through the healthcare.gov marketplace, the employer may be subject to a “pay or play” tax penalty. However, the “affordability” calculation (and whether you may owe a penalty) is based on the cost of employee-only coverage compared to the employee’s household income, and not what it would cost to insure their entire family. As a reminder, only applicable large employers (ALEs) are subject to this requirement. You are an applicable large employer if you averaged at least 50 full-time employees, including full-time equivalent employees, during the prior calendar year.
Thankfully, these new regulations did not change this analysis. All of the employer compliance computations and all of that reporting will still be based on the cost of employee-only coverage. In other words, the rules as we’ve all come to know them from the ALE compliance perspective did not change.
As the IRS put it: these regulations do not change when an employer could be subject to tax penalties, nor do they affect “any information reporting requirements for employers,” including Form 1095-C. If you’re satisfied by knowing your insurance offer, 1095-C reporting, and possible tax penalty obligations were not really affected, no need to read on. If you want more info on what did happen, read on, my friend.
Okay, so what really happened? The reason it’s called the “family glitch” is pretty straightforward. Let’s assume Employee A is a full-time paraprofessional that works for School District X, and School District X offers to pay Employee A’s full single premium and allows Employee A to pay out of pocket to enroll his spouse and kids. Whether or not Employee A accepts the offer and enrolls, or declines the offer to seek insurance elsewhere, School District X will not owe a tax penalty on Employee A because the cost to Employee A for single-only coverage is $0. In other words, School District X has satisfied its obligation to “offer” affordable insurance to its full-time employee and allow him to enroll the rest of his family through the school’s plan. This is true even if Employee A’s family has to pay $17,000 more out of pocket to enroll their full family, because compliance is based on the single-only offer to the employee.
Sounds like you’ve done it correctly, right? From the school’s compliance perspective, you have! However, that offer could have a meaningful impact on the insurance options available to Employee A’s family. It’s awesome that Employee A can receive single coverage at little or no cost, but what about Employee A’s spouse and kids? What if Employee A’s spouse is self-employed, they have 3 children, and they can’t afford to pay the $17,000 difference between employee-only and full family coverage?
Under the rules prior to these new regulations, because Employee A received an affordable offer from the employer, Employee A’s family was not eligible for premium tax credits or assistance if they tried to enroll through the healthcare.gov insurance marketplace. Thus, the “family glitch.” The Biden Administration (and most who commented on the proposed regulations) did not like that outcome. Employee A’s family really needed the benefit of premium assistance through the marketplace, but they weren’t eligible for that assistance because Employee A received an “affordable” offer from School District X. Marketplace eligibility was based on the cost of employee-only coverage, not the full cost to enroll the entire family.
These newest regulations changed that in an effort to “fix the glitch.” Starting with the next healthcare.gov open enrollment period (which began Nov. 1, 2022), Employee A’s family now may be eligible for premium tax credits. The new rules will compare the cost of enrolling Employee A’s full family on School District X’s plan against their household income. If the percentage difference is low enough, then Employee A’s family may be eligible for premium assistance through healthcare.gov even if Employee A’s offer was “affordable.”
Bottom line, the good ol’ “affordability” test for employer offers/reporting remains the same, but there’s a new “affordability” test for eligibility for premium assistance on healthcare.gov. As an employer, you will still only owe a tax penalty if you fail to offer a full-time employee “affordable” single-only insurance coverage and that employee obtains coverage and premium assistance on the healthcare.gov marketplace.
What does it all mean?! For our clients, not much from a purely legal compliance perspective. However, practically speaking you may see more employees and their families seek out marketplace insurance. They may do that by having the school’s employee take the district’s coverage and then insuring the employee’s family through the marketplace. Or, maybe the entire family will head to the marketplace. Will it lead to more negotiations over cash-in-lieu options; or more employees turning to healthcare.gov? We’ll see.
If you have any questions about these new regulations or your PPACA compliance, please contact your attorney or drop us a line at ksb@ksbschoollaw.com.