Recently, the IRS released a final rule changing the method for determining whether health insurance, provided by employers to their employees, is considered affordable when coverage is extended to other family members.
The impact of this change will be far-reaching in the Twin Ports area and beyond. Many employers do not contribute to the cost of covering additional family members, so these people are uninsured and risk serious financial consequences. As an agent in the health insurance market, I have had to turn down hundreds of people who fall into this glitch. Now they will have an alternative.
Prior to this change, an insurance plan was considered affordable if the amount an employee had to contribute to their individual coverage was less than 9.5% of their household income. It was an easy calculation if the employee was a single person. For example, if a single person earned $2,000 per month and his employer did not require him to pay more than $190 per month ($2,000 x 0.095) for his share of the health insurance premium, coverage was considered affordable.
However, if the employee had a spouse and/or other dependents, many employers required the employee to pay the entire difference (or a very large portion of the premium) to provide coverage for them. In many cases, this has created financial hardship and caused the spouse and/or dependents to try to obtain coverage through the federal health insurance market.
When they applied for coverage there, they discovered that because they were eligible for affordable coverage, they were not eligible for the federal premium tax credit that could be used to reduce the cost of their cover. This has led to many people in this situation giving up on taking cover and going uninsured, because the government’s definition of affordable certainly wasn’t!
After years of study and input from numerous consumer groups, this issue was corrected on October 11th. The result is that affordable coverage is now defined differently when it comes to spousal and/or dependent coverage. As of January 1, 2023, the definition allows employees to include the total amount they contribute for the entire family premium to determine if coverage falls within that affordable 9.5%.
Expanding on the previous example and assuming the employee earns $2,000 per month, a spouse also earns $2,000 per month, and two dependent children, here are the results: If the employee had to pay more than $380 $/month ($4,000 x 0.095) to cover the whole family, coverage for spouse and dependents would not be considered affordable and they could claim the premium tax credit and likely benefit from a plan comprehensive insurance that they could actually afford. However, the employee will still have to remain covered by his employer.
Tim Sauter has been an insurance agent for 51 years and is the President of Mediqwest Insurance Services, Inc. headquartered in Superior with offices in Superior, Hayward, Eau Claire, Menomonie, Hudson and Long Prairie, Minnesota . Mediqwest specializes in health insurance for people under 65 and plans for people covered by Medicare.