Under the American Rescue Plan Act (ARPA), the premium tax credits were increased for individuals at all income levels and the “subsidy cliff” at 400% of the federal poverty level was eliminated through the end of 2022. We discuss how substantial the enhanced premium tax credits are in our June 25 blog post.
Unfortunately, millions of uninsured Americans are blocked from receiving a premium tax credit because either their employer or a family member’s employer offers coverage that is considered “affordable.” Under the Affordable Care Act (ACA), if the cost the employee would pay for employee-only coverage—after the employer contribution—on the lowest-priced employer-sponsored health plan that provides minimum value is less than 9.83% of the employee’s entire household income in 2021, then that employee and the employee’s entire family is blocked from receiving a premium tax credit. This is known as the “family glitch,” which we explain in detail in a July 1 blog post.
The good news for 2022 is that the affordability percentage is dropping a little, from 9.83% to 9.61% of household income according to Internal Revenue Bulletin 2021-35, which was released August 30. This means that some people who were previously blocked from receiving a premium tax credit because it was considered affordable will now qualify, but millions of others will still be ineligible for premium assistance, even if they choose not to enroll in the group health plan.
So when can someone waive group coverage and receive a premium tax credit?
There are a few instances when the group policy will not block an individual from receiving financial assistance in the individual market:
- When the group plan is unaffordable: Again, the affordability threshold for 2022 is being lowered to 9.61% of the household income, so if the cost to the employee for single coverage exceeds this amount, then the employee and his/her family members can decline coverage on the group policy, sign up for coverage in the individual market, and apply for an advance premium tax credit (APTC).
For example, if an employee’s household income is $30,000 per year, then the annual cost of single coverage on the group plan would need to exceed $2,883 in 2022 for the coverage to be considered unaffordable: $30,000 x 9.61% = $2,883
If we divide $2,883 by 12, we find that if the monthly cost of coverage on the lowest-priced minimum value plan the employer offers is more than $240.25, then the employee and the employee’s family members could forego the employer coverage and qualify for a premium tax credit, which could be substantial depending on the household size and ages of the family members. - When an ICHRA is unaffordable: Employers now have the option of offering an Individual Coverage Health Reimbursement Arrangement (ICHRA), which reimburses employees in one or more employee classes for the cost of individual health coverage. Unfortunately, the family glitch is also built into an ICHRA, though the calculation is a little different.
As we learn from CMS, if the employee’s share, after the employer’s ICHRA reimbursement, for self-only coverage on the lowest-cost silver-level plan in the marketplace is higher than the affordability threshold (9.83% of household income in 2021; 9.61% in 2022), then the employee and the employee’s family members can waive coverage under the ICHRA and apply for a premium tax credit. On the other hand, if the employee’s cost for the lowest-cost silver plan is less than the affordability threshold, then the employee and the employee’s family members are blocked from receiving a premium tax credit. - When the group coverage does not provide minimum value: Under the ACA’s Employer Shared Responsibility requirement, more commonly known as the Employer Mandate, applicable large employers (ALEs) must offer “minimum essential coverage” to at least 95% of their full-time employees to avoid an across-the-board penalty. As SHRM explains, that penalty in 2022 is $2,750 per full-time employee with the first 30 excluded. So, a company with 100 full-time employees that fails to offer coverage to at least 95 of those employees would pay a penalty of $2,750 on 70 of those employees for a total of $192,500.
To avoid the across-the-board penalty, some ALEs offer an “MEC plan.” MEC stands for minimum essential coverage, and because any group health policy is considered minimum essential coverage, many of these plans have significantly reduced benefits and, therefore, do no provide “minimum value.” This means is that the employer will avoid the across-the-board penalty but could still face a separate penalty on any employee who waives the group coverage and receives a premium tax credit.
The good news for employees and their family members is that an MEC plan that fails to provide minimum value does not block them from receiving a premium tax credit unless they actually enroll in the group coverage. As long as the employee and the employee’s dependents waive the group coverage, they can purchase an individual policy and apply for a premium tax credit.
To be clear, when an employer offers affordable minimum essential coverage (a group policy that provides minimum value and that would cost the employee less than 9.61% of his or her household income in 2022) or an affordable Individual Coverage HRA (an ICHRA that would cost the employee less than 9.61% of his or her household income in 2022 for the lowest-cost silver-level plan), the employee and the employee’s family members are blocked from receiving a premium tax credit.
Your job as an agent is to find those individuals who are not blocked from receiving a tax credit—either because their group plan or ICHRA is unaffordable or because their group plan does not provide minimum value—and help them take advantage of the generous premium tax credits in 2022. There are a lot of people who will qualify, so agents who work hard and manage their time well could have a very successful open enrollment period. Good luck!
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