World

IRS Revises Family Glitch Rule Ahead Of 2023 Open Enrollment Period

On October 11, 2022, the Internal Revenue Service (IRS) and the Department of the Treasury issued a final rule to revise a 2013 interpretation on premium tax credit eligibility for families. This change fixes the so-called “family glitch” by newly extending eligibility for marketplace subsidies to many dependents of low-wage workers who were previously ineligible. The final rule was accompanied by statements from President Biden and Secretary Becerra of the Department of Health and Human Services (HHS).

The final rule means that family members who are offered unaffordable job-based family coverage will be newly eligible for subsidized marketplace coverage. Though not all of the newly eligible are expected to do so, the final rule ensures that eligible family members—primarily children and women—have the option of enrolling in affordable marketplace coverage. Federal officials expect the number of individuals with subsidized marketplace coverage to increase by about 1 million people.

Most of the rule goes into effect for the 2023 tax year, meaning family members who qualify can enroll in subsidized marketplace coverage for 2023. The IRS has coordinated with HHS to ensure that federal and state marketplaces can implement these changes ahead of the 2023 open enrollment period, which begins on November 1. The family glitch fix comes at a time of record-high marketplace enrollment, a record-low uninsured rate, and more generous marketplace subsidies thanks to an extension of American Rescue Plan Act’s enhanced subsidies by the Inflation Reduction Act.

Football Highlights

The IRS published a proposed rule on the family glitch in early April 2022 and held a hearing in late June. Of the 3,888 comments on the proposed rule, the “overwhelming majority” were supportive. Supporters included advocates for children and families such as First Focus on Children; patient representatives such as the American Cancer Society Cancer Action Network; provider representatives such as the American Academy of Pediatrics and the Children’s Hospital Association; insurer representatives such as AHIP; employer representatives such as the ERISA Industry Committee; and representatives of state officials such as the National Association of Insurance Commissioners and the State Health Exchange Leadership Network. Many supportive comments included personal stories shared by those affected by the family glitch, including a family featured on a Tradeoffs podcast that testified before the Maine legislature about their experience with unaffordable job-based family coverage.

Those who opposed the rule include organizations such as the Center of the American Experiment, the Council for Affordable Health Coverage, the Galen Institute, and the U.S. Chamber of Commerce. Many of these comments included legal analysis to argue against the proposed changes; some of those arguments were made in prior Health Affairs Forefront articles. The IRS responded to these legal arguments, meaning the preamble to the final rule reflects an even more robust legal analysis than the proposed rule. Perhaps anticipating litigation, the IRS provided additional discussion about the statutory basis for its revised interpretation and the need for consistent interpretations across IRS rules. Federal officials also respond to comments about the ACA’s legislative history and the fact that Congress has introduced, but not enacted, legislation that would statutorily amend this provision.

The final rule will not affect liability under the employer mandate, a fact confirmed by the IRS. Why not? The employer mandate requires certain large employers to offer coverage to employees and dependents. But penalties for violating the mandate are triggered only when an employee receives premium tax credits through the marketplace. The final rule extends premium tax credits to only the family members of workers who are not offered affordable job-based family coverage. It does not affect the eligibility of employees and thus does not implicate the employer mandate.

Background

What Is The Family Glitch?

The so-called “family glitch” stems from a 2013 IRS interpretation. Under Section 36B of the Internal Revenue Code, individuals generally do not qualify for premium tax credits if they are eligible for another source of minimum essential coverage, including employer-sponsored plans. There are two exceptions to this rule under the ACA—when the offer of job-based coverage is not “affordable” or not of “minimum value.” If either exception is met, an individual is ineligible for minimum essential coverage, which in turn makes them eligible for premium tax credits.

Affordability Test

An employer’s plan is not “affordable,” as defined under the ACA, if the employee must contribute more than about 9.5 percent of household income towards premiums. (This percentage was initially set at 9.5 percent and is adjusted annually; the threshold for 2022 is 9.61 percent. To avoid confusion, this article refers to the threshold as 9.5 percent throughout.) If an employer’s plan is not “affordable,” an employee may qualify for premium tax credits through the marketplace, and the employer may face penalties under the employer mandate.

In its 2013 interpretation, the IRS decided that an employer’s offer of coverage is “affordable” based on the cost of employee-only (rather than family) coverage. This means that an employee and their family members are ineligible for premium tax credits when the employee is offered affordable employee-only coverage. This is true even if the cost of family coverage is otherwise unaffordable (i.e., the employee’s contribution towards premiums for family coverage would exceed 9.5 percent of household income). Put simply, the employee’s share of the premium towards family coverage was not considered when determining whether job-based coverage is “affordable” for family members.

This situation—where employee-only coverage is affordable, but family coverage is not—is not uncommon. Most employers offer family coverage, but many do not subsidize it for family members which keeps the cost high for workers and their families. The Kaiser Family Foundation’s 2021 Employer Health Benefits Survey shows that average premiums and employee contributions have increased significantly over time. In 2021, average premiums for employee-only coverage were $7,739, compared to $22,221 for family coverage. Employees contributed 17 percent of the premium for employee-only coverage, on average, compared to 28 percent of the premium for family coverage. The average employee contribution rate was even higher at employers with a large share of lower-wage workers: employees in these firms contributed 35 percent of the premium for family coverage.

The interpretation of the ACA that created the family glitch was first proposed in broader rulemaking in 2011. In the preamble to the proposed rule, the IRS noted that the premium tax credit statute—Section 36B(c)(2)(C)(i)—referenced part of the individual mandate statute found in Section 5000A(e)(1)(B). This part of Section 5000A refers to an employee’s premium contribution for employee-only coverage. This reference, the IRS reasoned, meant that the affordability test for both employees and family members is based on the employee’s contribution for employee-only (not family) coverage. The IRS also cited a 2011 analysis from the Joint Committee on Taxation (JCT) that interpreted the affordability test to be based on employee-only coverage.

The family glitch policy was not finalized alongside other related provisions in a final 2012 rule. Instead, the IRS noted only that commenters opposed the proposed interpretation and that the policy would be finalized in future regulations. This interpretation was ultimately finalized as proposed in a short 2-page rule from 2013 that reiterated the prior rationale regarding the cross-reference to Section 5000A(e)(1)(B).

Many comments on both the 2011 proposed rule and the 2012 final rule—found here and here, respectively—urged the IRS to adopt an affordability test for family members based on the cost of family coverage. That interpretation was supported by members of Congress, consumer advocates, labor unions, and others including the National Health Law Program, First Focus on Children, and SEIU who argued that the interpretation was contrary to, or, at a minimum, inconsistent with, the ACA.  

Minimum Value Test

An employer’s plan is not of “minimum value,” as defined under the ACA, if it fails to cover at least 60 percent of total allowed costs. To determine whether an employer’s plan satisfies this 60 percent threshold, employers use a minimum value calculator (among other methods) to measure the generosity level of the coverage.

While the statute does not specifically mention family members, the IRS previously interpreted Section 36B(c)(2)(C)(ii)’s minimum value requirement to extend to coverage for both employees and family members. As such, a family member who is offered job-based coverage that fails to provide minimum value is treated as ineligible for minimum essential coverage—and thus eligible for premium tax credits.

Separately, the IRS and HHS clarified that minimum value is met only when plans satisfy the 60 percent threshold and include “substantial coverage” of inpatient hospital services and physician services. This issue was initially addressed in a notice in 2014 after media coverage suggested that employer plans were not covering these major categories of care while still satisfying the 60 percent minimum value threshold. Following the notice, HHS proposed and finalized updates to its regulations on minimum value in the 2016 payment notice. The IRS followed with its own proposed rule in 2015, but that rule was never finalized.

Who Is Affected By The Family Glitch?

The IRS’s interpretation has barred an estimated 5 million Americans—mostly the children of low-income workers—from receiving premium tax credits for marketplace coverage even when they would otherwise qualify based on household income. According to the Kaiser Family Foundation, an estimated 5.1 million people fell into the family glitch in 2021. About 2.8 million were children, nearly half of whom (46 percent) were low-income. Most (85 percent) were enrolled in job-based family coverage, while about 9 percent were uninsured and 6 percent purchased unsubsidized individual coverage.

A May 2021 analysis from the Urban Institute found that 4.8 million people would be eligible for premium tax credits if the family glitch were fixed. Again, nearly half of those affected were children. Consistent with the IRS’s estimates (discussed below), the Urban Institute estimated that only about 710,000 people would enroll in subsidized marketplace coverage, leading to 190,000 fewer uninsured people, at a cost of about $2.6 billion annually in increased premium tax credits. Of those that switched from job-based plans, families would save about $400 per person in premiums on average, with even greater gains ($580 per person) for those with incomes under 200 percent of the federal poverty level. There would be no disruptions to the employer market even as hundreds of thousands of families gained access to affordable marketplace coverage.

Subsequent analyses from the Kaiser Family Foundation and Third Way, both issued in April 2022, further highlighted the impact of the then-proposed rule. The Kaiser Family Foundation found that fixing the family glitch would be especially important for extending affordable coverage to the family members of workers at smaller businesses (i.e., those with up to 200 employees). About 29 percent of covered workers at these businesses are asked to contribute at least $10,000 for family coverage. Of those, many workers are concentrated in firms with 49 or fewer employees. Contributions for family coverage are also higher for those in the service industry as well as those in agriculture, mining, and construction.

According to Third Way, the proposed rule would reduce health care costs by $4,152 for a typical family of four with an income of $53,000 (i.e., 200 percent of the federal poverty level). Families at 300 percent of the federal poverty level would see lower savings while those at 400 percent of the federal poverty level would not see savings under the fix to the family glitch. Savings would vary by income, the cost of job-based coverage, geographic location, and state Medicaid eligibility, among other factors.

These analyses built on yet earlier studies or analyses from RAND, the Agency for Healthcare Research and Quality (AHRQ), and the U.S. Government Accountability Office (GAO). In 2015, RAND estimated that an estimated 4.2 million people could gain access to premium tax credits. Marketplace enrollment would increase by about 1.4 million and the number of uninsured people would fall by 700,000. Average total health spending among newly subsidized families would also fall significantly. AHRQ’s estimates were even higher: the agency noted that an estimated 10.5 million adults and children were affected by the family glitch in 2014.

In a 2012 report, the GAO noted that an estimated 6.6 percent of uninsured children—about 460,000 uninsured children—would be ineligible for premium tax credits because of the IRS’s (at-that-time) proposed affordability standard. In light of the disproportionate impact of the IRS’s interpretation on children, the GAO recommended that the IRS consider an alternative interpretation for the family glitch.

The Final Rule

The final rule 1) clarifies that the affordability test for family members is to be based on the cost of family (rather than employee-only) coverage; 2) clarifies the minimum value rule for family coverage; and 3) clarifies the treatment of rebates for purposes of premium tax credit eligibility. The “affordable” and “minimum value” tests are changed only as they relate to family (but not employee-only) coverage. The final rule includes several new examples of how these the changes apply, as well as a severability clause.

The final rule flows from an executive order on the ACA and Medicaid issued by President Biden in January 2021. Among other requirements, the executive order directed the Secretary of the Treasury to examine policies that might reduce the affordability of coverage, including for dependents. Pursuant to that directive, the IRS reviewed the 2013 interpretation and proceeded with a proposed rule, hearing, and now this final rule. There was “overwhelming” support for the proposed rule from commenters.

Affordability Test For Family Coverage

The final rule reflects separate affordability tests for employees and family members. Under the 2013 interpretation, the test is the same: employees and family members are equally barred when the employee has an offer of affordable employee-only coverage. The final rule leaves the affordability test for the employee unchanged. But it adopts a new, separate test for family members such that affordability for family members will be based on the employee’s contribution towards family coverage. As discussed more below, this aligns the eligibility rule for premium tax credits with a long-standing IRS rule for exemptions to the individual mandate penalty.

Specifically, an offer of job-based coverage is considered affordable for family members if the portion of the annual premium that an employee must pay for family coverage—i.e., the employee’s required contribution towards family coverage—is less than 9.5 percent of household income. The marketplace will assess 1) whether the employee has an offer of affordable employee-only coverage; 2) whether the family members have an offer of affordable family coverage; and 3) whether any of those family members have an offer of affordable coverage from another employer.

For the affordability calculations, the relevant family members are those in the employee’s tax family, meaning the employee, a spouse filing jointly, or a dependent. Other family members—such as adult children up to age 26—might be offered job-based coverage. But, if they are no longer on the employee’s tax return, they are not considered in the affordability test for family coverage. Enrollment of other individuals, even if it makes the family coverage more expensive, will not be considered under the affordability test for family members. This issue is illustrated in example 4 of the final rule.

If an individual is offered coverage from multiple employers (whether as an employee or dependent), only one of those offers must be affordable to bar access to premium tax credits. An offer of affordable family coverage from any employer makes family members ineligible for premium tax credits. This is illustrated in examples 5 and 6. The IRS intends to update its forms to address multiple offers of employer coverage.

The final rule does not affect the affordability test for employees, which remains unchanged. Employees remain barred from marketplace subsidies if their job offers affordable employee-only coverage, but their family members will be newly eligible. The IRS maintained this separate affordability test for employees even though some commenters urged otherwise. Commenters raised concerns about “premium stacking” since family members will be split between two plans (with job-based coverage for the employee and marketplace coverage for the rest of the family). IRS officials acknowledge these concerns but note that the ACA is clear on the reference to self-only coverage for employees.

The final rule includes a conforming change regarding the “part-year period rule” which governs when an employee has a job for less than the full calendar year. This extends the separate affordability test for employees and family members to those with only partial-year coverage.

The IRS addresses non-calendar year employer plans and individual coverage health reimbursement arrangements (ICHRAs). The preamble makes clear that qualifying family members in most non-calendar year employer plans can, subject to plan rules, disenroll from their employer plan on January 1, 2023 and enroll in marketplace coverage that begins on January 1, 2023. For those enrolled in cafeteria plans, the IRS issued a new notice to clarify that qualifying employees, spouses and dependents can discontinue their employer coverage during a plan year and enroll in subsidized marketplace coverage. The new notice applies to elections that are effective on or after January 1, 2023. This will enable employers to revoke coverage in a cafeteria plan beginning in 2023; family members can then enroll in marketplace coverage through a special enrollment period.

The final rule does not revise the affordability rules for ICHRAs. Under current rules, a family member who can be covered under an ICHRA generally does not qualify for premium tax credits if the ICHRA offer is affordable or the employee takes advantage of the ICHRA. A family member may, however, be eligible for premium tax credits if they are not eligible for coverage through the ICHRA. Future guidance on ICHRAs may be forthcoming.

The Rationale

The final rule revises the IRS’s prior interpretation and shifts positions relative to the Obama and Trump administrations. This is not unusual. The Supreme Court has made clear that policy changes are permissible and expected, and agencies can reconsider prior interpretations to ensure that the law is implemented correctly, to reflect new circumstances, and to adopt a change in policy preferences.

The IRS acknowledges as much while explaining its rationale for the revised interpretation. When the 2013 interpretation was adopted, there was limited information and data available about the effects of a separate affordability test for family members. This early uncertainty has since given way to significant experience, and substantial progress, under the ACA.

Even so, about 8 percent of people remain uninsured, in part due to the high cost of coverage, with especially high premiums and cost sharing for families with employer coverage. Citing the data noted above and personal stories from commenters, the IRS now recognizes that the 2013 interpretation exacerbates these affordability challenges. This new evidence, along with experience since the marketplaces opened, has contributed to the IRS’s determination that the 2013 interpretation did not represent the best reading of the ACA.

Statutory Analysis

Not only does the statutory text not compel the 2013 interpretation, but the IRS believes that the revised interpretation—a separate affordability test for employees versus family members—is a better reading of the statute. Section 36B(c)(2)(C)(i) is best interpreted in a way that accounts for the cost of family coverage and creates consistency across the IRS’s interpretations of the same statutory language.

Under Section 36B(c)(2)(C)(i)(II), an employee is ineligible for employer-sponsored coverage (and thus eligible for premium tax credits) if their required contribution—defined by reference to Section 5000A(e)(1)(B)— is more than 9.5 percent of their household income. The same provision also includes flush language that reads: “this clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee.” This flush language, the IRS asserts, does not clearly express how Section 36B(c)(2)(C)(i)(II) applies to dependents—or how to read the cross-reference to Section 5000A(e)(1)(B).

Section 5000A(e)(1)(B) states that the “required contribution” refers to “the portion of the annual premium which would be paid by the individual … for self-only coverage.” In the 2013 rule, the IRS stopped its analysis there and did not look at the next provision, Section 5000A(e)(1)(C), which modifies Section 5000A(e)(1)(B).

In the final rule, the IRS reads the reference to Section 5000A(e)(1)(B) in Section 36B(c)(2)(C)(i) as clarified by the “special rule” for dependents in Section 5000A(e)(1)(C). This is not a new or novel approach. In fact, the IRS adopted the same position in earlier rules on the individual mandate. In those rules, the IRS concluded that an employee’s required contribution towards family coverage, not employee-only coverage, dictated affordability for purposes of an exemption to the individual mandate. This makes sense because Section 5000A(e)(1)(C) explicitly says that it applies “for purposes of subparagraph (B)(i).” This long-standing rule on the individual mandate was finalized in August 2013 and has never been challenged.

Turning back to the family glitch, the IRS adopts the same interpretation here: the “special rule” for family members in Section 5000A(e)(1)(C) modifies Section 5000A(e)(1)(B) and carries through to the reading of Section 36B(c)(2)(C)(i). Thus, the required contribution used to determine eligibility for premium tax credits for related individuals is based on the portion of the annual premium that the employee must pay for the employee and those related individuals (i.e., the employee’s contribution towards the cost of family coverage). This aligns and ensures consistency between affordability rules under Section 36B and Section 5000A, so both reflect separate affordability tests for employees (based on the cost of employee-only coverage) and dependents (based on the cost of family coverage).

Second, the IRS returns to the flush language that follows Section 36B(c)(2)(C)(i)(II) to show that substituting the phrase “a related individual” for “an employee” in Section 36B(c)(2)(C)(i) leads to the same conclusion. With this substitution, this provision reads as “[a related individual] shall not be treated as eligible for minimum essential coverage if such coverage (I) consists of an eligible employer-sponsored plan … and (II) the employee’s required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer’s household income.” Under this reading, the reference to the employee’s required contribution is the amount that the employee would have to contribute towards family coverage. Similar arguments were raised in comments by tax experts.

Not all commenters agreed with this analysis. Some argued that Section 36B—by referring to only to Section 5000A(e)(1)(B) and not Section 5000A(e)(1)(C)—unambiguously requires the 2013 interpretation by establishing a single affordability rule for employees and family members that is based on the cost of employee-only coverage. The IRS devotes several pages of the preamble to responding to these arguments, concluding that Section 36B does not unambiguously compel the 2013 interpretation. Other commenters argued that Section 36B unambiguously requires separate affordability rules consistent with the revised interpretation; these commenters argued that the 2013 interpretation was based on a strained and erroneous reading of the statute.

Congress, had it intended the family glitch, knew how to create a single test if it wanted to. In fact, Congress did just that in 2016 when creating affordability rules for qualified small employer health reimbursement arrangements under Section 36B(c)(4). In contrast to Section 36B(c)(2)(C)(i)(II), Congress adopted the same affordability rule for “an employee (or any spouse or dependent of such employee)” based on the cost of employee-only coverage. Or Congress could have clearly limited the scope of Section 5000A(e)(1)(C) to only Section 5000A-related determinations. Congress did none of these things.

Third, the final rule promotes consistency with Section 1411 of the ACA which requires HHS to establish eligibility procedures for the marketplace. Section 1411(b)(4)(C) requires marketplaces to collect information about lowest-cost employer options and how much an enrollee or family member must contribute towards that plan. Congress required data on the “lowest cost option for the … enrollment status.” This indicates that the contribution amount may vary based on whether the enrollment status refers to employee-only or family coverage. If Congress intended the family glitch, it made little sense to require this information: the statute would have referred solely to employee-only coverage.

Fourth, the IRS rejects arguments that the revised interpretation is inconsistent with the ACA’s employer mandate. One commenter suggested that the employer mandate supports a single affordability test for both employees and dependents. The IRS disagrees: Section 36B and the employer mandate apply to different types of taxpayers and have different purposes. The employer mandate simply does not speak to the affordability of job-based coverage for spouses or dependents.  

Responses To Other Arguments

The IRS also rejects an argument that the ACA’s legislative history—based on changes made to ACA precursor bills in the Senate—shows that Congress intended the family glitch. If it had, Congress would not have included special rules for related individuals at all. The preamble also explains why the IRS no longer relies on the JCT analysis that was cited in the preamble to the 2013 rule.

Citing proposed (but not enacted) legislation to amend the affordability test, some commenters asserted that any change to the 2013 interpretation must be done by Congress through legislative action, rather than through administrative action. The IRS disagreed, noting that the introduction of proposed legislation is not an indication that the IRS cannot revise its approach to the affordability test.

The IRS also rejects criticism that the preamble to the proposed rule failed to include specific cost estimates and other analyses in violation of the Administrative Procedure Act, the Regulatory Flexibility Act, and executive orders. The preamble reflected a sufficiently detailed qualitative analysis of the proposed rule’s benefits, costs, and transfers in accordance with a 2018 agreement with the Office of Management and Budget, the IRS concludes, and otherwise satisfied requirements that apply to tax regulatory actions.

Finally, the preamble emphasizes that the 2013 interpretation—by undermining access to marketplace coverage for family members that otherwise qualify—is contrary to the goal of the ACA to expand access to affordable coverage. The IRS has therefore adopted an alternative reading of the statute that will expand access to marketplace subsidies, consistent with the law.

Minimum Value Test For Family Coverage

The final rule adopts the minimum value policies outlined in the proposed rule without change. First, the IRS withdraws the proposed rule from 2015 related to substantial coverage of inpatient hospital services and physician services. Though that older rule is withdrawn, the IRS reproposed and then adopted the standards on inpatient hospital services and physician services for employees without substantive change. The final rule also extends this standard to family members.

Second, the final rule creates a separate test for minimum value: one for employees and one for family members. Existing federal rules help ensure that the coverage offered to both employees and family members is of minimum value. However, if family members are not explicitly included in the minimum value test, the IRS is concerned that employers could potentially offer a plan that is affordable but does not provide minimum value—thereby still barring family members from eligibility for premium tax credits. This result would be inconsistent with the goals of the ACA.

The final rule thus maintains the current minimum value standard for employees: a plan provides minimum value for an employee only if the plan’s share of the total allowed costs of benefits provided to the employee is at least 60 percent and the plan provides substantial coverage of inpatient hospital services and physician services. It also adopts a separate minimum value test for family members. A plan thus provides minimum value for family members if the plan’s share of total allowed costs of benefits provided to the family member is at least 60 percent and the plan provides substantial coverage of inpatient hospital services and physician services. The employee test remains in effect (as it is now) while the family member test will apply beginning with the 2023 plan year.

The “vast majority” of commenters supported this change, with supportive commenters explaining that employers rarely differentiate coverage levels for employees versus family members. To clarify its intent that employers continue to provide plans with the same benefit design for employees and dependents, the final rule affirms that an employer plan that provides minimum value to an employee also provides minimum value to family members if the scope of benefits and cost sharing is the same. The final rule is not intended to burden employers with having to offer different plans or benefit packages for employees and their family members. Employers can continue to compute minimum value using a standard population that includes both employees and family members.

Premium Refunds

The final rule clarifies how the receipt of a premium refund (such as a medical loss ratio rebate) owed from a prior year’s coverage affects the amount of premium tax credits that a person is currently eligible for. In general, refunds from prior years should not count against the amount that an enrollee is otherwise eligible to receive for premium tax credits. This is because tax liability for a given year is based on events that occurred during that year. In general, the amount of premium tax credit that an enrollee is currently eligible for should not be affected by a premium refund paid in a later taxable year. This provision was adopted without change from the proposed rule.

Implications And Implementation

Implications

Though there is some uncertainty about the rule’s impact, the Office of Tax Analysis expects the number of individuals with subsidized marketplace coverage to increase by about 1 million people. This includes both uninsured people and insured dependents moving from job-based coverage to marketplace coverage. The rule is also expected to increase the federal deficit by an average of $3.8 billion per year over the next 10 years. This cost estimate is slightly higher than a recent estimate from the Congressional Budget Office. Even with the price tag, federal officials believe the rule’s increases in coverage and affordability outweigh the associated costs.

The estimate of 1 million subsidized enrollees—which is consistent with many of the studies cited above—is far below the estimated 5 million people that fall in the family glitch. This is because not all family members are expected to take-up subsidized marketplace coverage simply because it is available. Why not? Some might prefer to have all family members remain on a single job-based plan rather than have families split between a job-based plan and marketplace coverage. This “premium stacking” or “split coverage” means separate premiums, deductibles, out-of-pocket maximums, and provider networks that might also be expensive or unwieldy for families.

Overall, enrollment of an estimated 1 million people under the final rule is extremely modest relative to the more than 170 million people enrolled in job-based coverage. Given this extremely modest impact, the final rule is not expected to impact employer premiums or employer decisions to offer (or contribute to) family coverage. The net effect on employer premiums, if any, is “likely to be negligible.” And other long-standing incentives to offer job-based coverage—from the tax exclusion to competitive pressure to recruit and retain employees—remain fully in place. The IRS’s conclusion is consistent with the Urban Institute study noted above that found there would be no disruption to the employer market.

A few commenters suggested that states could be harmed by an incidental increase in Medicaid or CHIP enrollment. This would occur not because the final rule makes any eligibility changes to those programs but because more families might see if they are newly eligible for subsidized marketplace coverage and learn that members of their family are already eligible for public programs.

This effect, if any, is expected to be small. The final rule itself does nothing to alter Medicaid or CHIP eligibility, and the preamble refers to these potential second-order effects as “indirect and speculative.” How small are we talking about? The Urban Institute estimated that enrollment through Medicaid and CHIP would increase by about 93,000 people nationwide (a change of 0.1 percent relative to the nearly 89 million individuals enrolled as of May 2022). Of these, 82,000 enrollees would be children. The IRS received no comments from states expressing concern about these potential consequences.

Implementation

To help ensure that families understand this new coverage option—and its advantages and disadvantages—commenters urged HHS and the IRS to provide educational clear resources. Commenters were especially concerned about confusion for those with low health literacy or limited English proficiency. Federal officials acknowledged the importance of consumer information while also emphasizing the importance of providing more choices for health coverage. Enrollment remains voluntary—and those who are newly eligible under the final rule can opt for subsidized marketplace coverage, maintain their current coverage, or remain uninsured.

Ahead of November 1, HHS intends to revise the marketplace application to include 1) new questions about employer coverage offers for family members; and 2) updated materials to help consumers collect information from their employer. HHS is also working with state-based marketplaces to ensure that these entities can take all necessary steps (including outreach and education) to implement the final rule for the 2023 open enrollment period; additionally, HHS is providing training to assisters. HHS will consider conducting outreach to specific consumers (such as those denied marketplace subsidies in the past). For its part, the IRS will update its forms, instructions, publications, and website ahead of the 2023 tax filing season. HHS and Treasury will work together to inform states about any implications for approved Section 1332 waivers or applications.

Although commenters made recommendations for employer outreach (such as model notices), the final rule imposes no new requirements on employers. Federal officials do not intend to issue formal guidance or model notices but will “work to ensure that outreach materials” are accessible to individuals and employers. The preamble also confirms that nothing in the final rule affects any reporting or recordkeeping requirements; the IRS does not intend to revise Forms 1095-B or -C to require any additional data elements. And existing safe harbors under the employer mandate remain undisturbed and fully available for employers.