Charlotte, NC – December 6, 2022 – The IRS recently issued final regulations, effective December 12, 2022, to address the ACA premium tax credit “family glitch”. The regulations provide that for purposes of determining eligibility for the premium tax credit only, affordability of employer coverage for eligible family members is determined based on the employee’s share of the cost of covering the employee and those family members. Note the regulations do not change how an employer determines affordability for purposes of the ACA employer mandate (i.e., based on employee-only coverage cost).
While the premium tax credit final regulations do not directly impact Flores’ administration of plans on your behalf, the IRS also issued guidance in Notice 2022-41 which impacts cafeteria plans. This Notice, which is effective for cafeteria plan elections effective on or after January 1, 2023, aligns the status change event rules with these recent final regulations by allowing plans to update their status change events to permit employees to prospectively revoke their election under a group health plan mid-year (excluding Health Care FSAs) for family members who have enrolled or intend to enroll in Exchange coverage.
Notice 2022-41 as originally published only provided a change event amendment opportunity for non-calendar year cafeteria plans, but the IRS later revised the Notice so that the guidance applies to all cafeteria plans. This change was not formally announced so many who read the original version of the Notice may not realize the change was made. This change allows all cafeteria plans to adopt the additional permitted election change (regardless of plan year).
Background
Under the Section 125 rules, an election under a cafeteria plan is irrevocable for a plan year unless the plan includes IRS-allowable status change events in the terms of the plan and the participant experiences one of these permitted status change events. If an allowable status change event applies, employees can make certain changes to their elections mid-year. With the creation of the Exchanges as part of the Affordable Care Act, the IRS issued Notice 2014-55 in 2014 which expanded the allowable status change events to create an employee Exchange enrollment event. This expansion allows a mid-year election change if an employee is an eligible for special enrollment in the Exchange or seeks to enroll in the Exchange during the annual open enrollment period. Additionally, the employee (and any related individuals whose coverage is also being dropped) must enroll or intend to enroll in the Exchange and the new coverage must be effective no later than the last day immediately following the last day of the revoked coverage (the employer can rely on employee’s reasonable representation of enrollment or intent to enroll).
Notice 2014-55 did not permit a mid-year election change if only an employee’s covered family member (and not the employee) was eligible for Exchange enrollment (special enrollment or open enrollment).
Notice 2022-41 –Requirements for Family Member Exchange Enrollment Event
Notice 2022-41 expands the status change events to create a family member Exchange enrollment event. If adopted, this status change event allows an employee to prospectively revoke an election of family coverage mid-year for some or all family members provided the following conditions are met:
- One or more related individuals are eligible for a special enrollment period to enroll in Exchange coverage or seek to enroll during the Exchange’s annual open enrollment; and
- The related individuals whose coverage is being revoked enroll or intend to enroll in the Exchange for new coverage that is effective beginning no later the day immediately following the last day of the revoked coverage.
If the employee does not enroll in the Exchange (as set forth in Notice 2014-55), the employee must elect employee-only coverage (or family coverage minus the individuals that enroll in the Exchange) under the employer’s plan.
A plan may rely on the employee’s reasonable representation that the employee’s family members have enrolled or intend to enroll in Exchange coverage that is effective immediately following termination of the group coverage.
Employees still have to meet the eligibility specified in IRS Notice 2014-55 to revoke their own election under the employer’s plan. Neither Notice 2014-55 nor Notice 2022-41 permit mid-year Health FSA election changes.
Plan Amendment Required
Employers that wish to adopt this new family member Exchange enrollment change event must communicate the change to participants and amend their cafeteria plan. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed. The Notice provides that for a plan year beginning in 2023, an amendment may be adopted any time on or before the last day of the plan year beginning in 2024. The amendment can be retroactive to the first day of the plan year, but the plan must operate in accordance with Notice 2022-41.
