One of the key remaining features of the Affordable Care Act (ACA) is that certain employers must offer their employees medical coverage, or else pay a penalty. The details of that “employer shared responsibility payment” (ESRP) are many. One of those details is that the employer coverage must be “affordable.” Affordability looks at how much of an employee’s household income goes toward premiums.

As originally implemented, affordability was measured by reference to the premiums charged for employee-only coverage. The premium cost for family or other tiers of coverage wasn’t taken into account. Some critics called this the “family glitch.” Starting in 2023, that changes. New IRS regulations require that in 2023, affordability is measured by looking at the employee’s premium cost for family coverage.

Employers reading this may be steeling themselves for bad news – what else is the IRS going to require us to report? Do we now have to test our family premium tiers? Good news – there is no bad news! The new regulations only apply in the context of determining whether a person is eligible for the premium tax credit. In other words, failure to offer “affordable” family coverage will only mean that an employee and dependents may be eligible for subsidized coverage on an Exchange. The employer’s reporting obligations (Form 1095-B and 1095-C) will remain the same, and the employer will only owe an ESRP penalty if the cost of employee-only coverage is unaffordable. The preamble to the regulations said it clearly: “the purpose of [the ESRP] provision is to ensure that large employers share responsibility under the ACA for providing affordable health coverage to employees, but this responsibility does not extend to affordable coverage for spouses or dependents.”