The IRS recently proposed new rules regarding the shared responsibility provisions of the Affordable Care Act (ACA) and a set of questions and answers to clarify coverage requirements. Effective January 1, 2014 an employer with 50 or more full-time employees or full-time equivalent employees will be required to offer at least 95% of its full-time employees and their dependents minimum essential health benefit coverage, or in the alternative pay a penalty if any full-time employee receives a federal subsidy to purchase insurance through a health exchange. A covered employer will pay a penalty when the coverage it offers is not affordable and the new rules clarify that coverage is affordable generally only when the cost of coverage is no more than 9.5% of the employee’s household income. Because of the practical difficulty of determining an employee’s household income, the employer’s safe harbor will be providing coverage that costs no more than 9.5% of the employee’s wages paid by the employer as reported in Box 1 of Form W-2.
Additionally, the proposed rules clarify that a covered employer must offer coverage to an employee’s children under the age of 26 but need not offer affordable coverage to dependents, or any coverage at all to the employee’s spouse unless the spouse is also an employee of the employer. The new rules create a strong incentive for a covered employer to direct money into health insurance coverage for its employees rather than their dependents.
Covered employers may rely on the new rules for guidance until a final rule or other materials are issued.