Affordability Clarification: When Can Dependents Qualify for Premium Subsidy in an Exchange

Last week the IRS issued final regulations on when an employer-sponsored health plan could be considered affordable. The statement from the Federal Register reads:

 The proposed regulations provided that, for taxable years beginning before January 1, 2015, an eligible employer sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage (the required contribution percentage) does not exceed 9.5% of the taxpayer’s household income. While several comments supported this rule, other comments asserted that the affordability of coverage for related individuals should be based on the portion of the annual premium the employee must pay for family coverage.

These final regulations adopt the proposed rule without change.

While we were always confident that the affordability measurement would be based on self-only coverage there was questions related to the eligibility of "related individuals" i.e. dependents of employees.   These regulations make it clear that "related individuals" will not qualify for a subsidy if the employer sponsored coverage is determined to be affordable based on the contribution for self-only coverage. This also assumes the plan meets the requirements for actuarial value.   The regulations also clarify that:   for purposes of applying the affordability exemption from the shared responsibility payment in the case of related individuals, the required contribution is based on the premium the employee would pay for employer-sponsored family coverage.

This means that if citizens want to apply to be exempt from paying the "shared responsibility payment" (i.e. penalty for not having qualified insurance coverage in 2014) they will apply using the family contribution for the employer sponsored coverage. This does not put the employer at risk for any type of penalty.

To view the Federal Register click here.