IRS Moves to Expand Obamacare Subsidies to Families (2)

Legal challenges are likely to a rule released Tuesday that will make it easier for families whose members have employer-sponsored health plans to get Obamacare subsidies.

There “absolutely” will be litigation challenging the rule, said Brian Blase, president of the Paragon Health Institute and former health-care adviser in President Donald Trump‘s National Economic Council. “This is the White House wanting to expand Obamacare, and getting the IRS to change its enforcement of the tax code because of White House political pressure.”

Blase said the final rule is illegal because the statute defines an affordable plan as a self-only plan, not one that includes family members.

The final rule (RIN 1545-BQ16) from the Internal Revenue Service is meant to close the “family glitch,” which prevents family members from receiving Affordable Care Act subsidies if a household member has access to employer-sponsored coverage that meets the law’s requirements for affordability and coverage. The law requires that employer-sponsored plans be affordable only for employees, not for family members, although family coverage may be unaffordable for the entire household.

The rule defines affordability for family members based on the employee’s share of the cost of covering the employee and family members, “not the cost of covering only the employee,” it said.

The rule will “not have a direct effect” on the liability employers face if they don’t provide affordable coverage to employees, it said. “The employer shared responsibility payment is triggered by the allowance of a PTC [premium tax credit] with respect to a full-time employee,” it said. “These final regulations may affect a related individual’s eligibility for a PTC, but they do not affect an employee’s eligibility for a PTC, and thus these final regulations do not affect the liability” of the employer.

ACA supporters have called for providing the extra subsidies for families since many families can’t afford coverage if someone in the household has employer coverage. But the rule could be subject to legal challenges.

Three Republican senators said in a May 11 letter to IRS Commissioner Charles Rettig that the proposal “not only runs counter to the plain reading of the law, but would dramatically expand spending on Obamacare plans and result in a significant shift of individuals out of employer-sponsored insurance and into government-designed and subsidized Obamacare coverage.”

More than 5.1 million people fall into the “family glitch,” the Kaiser Family Foundation estimates.

The White House said nearly 1 million currently insured people would get more affordable coverage. The Urban Institute estimated that 585,000 people would move out of employer coverage, decreasing employer spending by about $2 billion a year.

The proposal is estimated to cost more than $45 billion from 2020 to 2030, and White House estimates show it would lead to about 200,000 uninsured people gaining coverage.

The new rules create greater consistency between rules under tax code Section 36B and those under Section 5000A that are used to determine whether an individual is exempt from the individual shared responsibility payment because employer coverage is unaffordable, the IRS said.

“With the finalization of the proposed section 36B affordability rule in these final regulations, both rules provide that affordability for employees is based on the employee’s cost for self-only coverage and that affordability for family members is generally based on the amount an employee must pay to cover the employee and the related individuals included in the employee’s family,” the rules said.

“The final regulations seem to stick very closely to the proposed regulations,” Katy Johnson, senior counsel for health policy at the American Benefits Council, said in an interview. The American Benefits Council represents large employers that offer health and retirement benefits and service providers, and it said in its comment letter on the proposed rule that it supported the goal of increasing access to high-quality affordable health care.

The ABC finds it is “helpful that in the preamble, as we had requested, Treasury and IRS made more explicit statements to the effect that these rules won’t impact in any way directly employers’ liability under the employer mandate, and also helpfully confirmed that the final rules will not impact in any way employers’ reporting obligations,” Johnson said.

In addition, Johnson applauded the rule for pledging to develop resources that individuals and employers can use for education about the implications of family members on separate plans from employees. “That can be complicated,” she said. “That can have, for some families, negative consequences with double deductibles, double out-of-pocket maximums.”

The IRS said it would issue a separate notice allowing employees in plans that don’t have calendar years to enter the marketplaces in 2023 to take advantage of the new rule, Johnson said.