Final regulations adopt ‘family-friendly’ health care affordability test

By Paul Bonner

The IRS on Tuesday issued final regulations adopting an affordability test for employer-sponsored minimum essential coverage for purposes of the Sec. 36B premium tax credit that takes into consideration the cost of covering an employee's family members in addition to that of the employee.

The final regulations (T.D. 9968) adopt largely unchanged the proposed regulations it issued in April 2022 (REG-114339-21; see prior coverage).

The change has been called a fix for a "family glitch" within 2013 regulations that based the affordability test on self-only coverage regardless of whether the coverage being tested was for an employee only or extended to the employee's family members as well. When they issued the 2013 regulations, the IRS and Treasury said, they believed they were constrained to that reading of the statute, specifically, Sec. 36B(c)(2)(C)(i)(II) and its cross-references to Sec. 5000A(e)(1)(B) (which provides a requirement to maintain minimum essential coverage, mooted since 2018 by Congress's elimination of its penalty).

But in 2021, an executive order by President Joe Biden directed Treasury to review all regulations and other agency actions for their consistency with, and support for, the 2010 Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, which enacted Secs. 36B and 5000A, among other components of the health care laws.

That review led Treasury and the IRS to propose the "fix": For purposes of determining eligibility for a premium tax credit, affordability of employer coverage for related individuals in an employee's family is determined based on the cost of covering the employee and those related individuals, not just the employee.

The agencies' reinterpretation was prompted in part by recognizing that although Sec. 5000A(e)(1)(B)(i) bases an employee's required contribution to the cost of coverage on self-only coverage, a special rule encompasses related individuals. Also, as the preamble to both the proposed and final regulations noted, the flush language in Sec. 36B(c)(2)(C)(i) "does not state clearly and expressly" how it or its cross-reference to Sec. 5000A(e)(1)(B) applies to related individuals or their coverage.

An "overwhelming majority" of the 3,888 comments the IRS and Treasury received on the proposed regulations applauded the change, many with personal stories of their inability to cover family members.

"One married couple even testified to a state legislature that they divorced solely to retain the husband's eligibility for the [premium tax credit]," the preamble to the final regulations related. Some commenters stated that the proposed regulations' change "is family-friendly because it is more likely to provide all family members with access to affordable coverage."

At least a few commenters, however, thought the IRS and Treasury got it right the first time, that "the proposed regulations are contrary to the language of section 36B, and that the Treasury Department and the IRS do not have the authority to change those rules." The IRS and Treasury, however, "are not persuaded by these arguments."

In addition to the affordability test, the final regulations adopt proposed regulations making a similar change to the rules for determining whether employer coverage provides minimum value. A separate minimum-value rule is provided for related individuals that is based on the level of coverage provided to them under an eligible employer-sponsored plan. It requires a plan's share of the total allowed costs of benefits provided to related individuals to be at least 60%.

The final regulations apply for tax years beginning after Dec. 31, 2022, which the preamble stated is intended to allow spouses and dependents who have been negatively affected by the 2013 affordability rule to be able to obtain affordable coverage through a PPACA exchange beginning in the 2023 plan year.

The open enrollment period for the 2023 plan year is Nov. 1, 2022, through Jan. 15, 2023, according to Meeting that deadline "may present some new challenges," the regulations' preamble acknowledged, but the Department of Health and Human Services will provide additional resources and technical assistance aimed at helping enrollees understand their options.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at

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