On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law by President Biden. While the Act generally focuses on reducing the federal deficit and various environmental measures, portions of the Act may indirectly impact employer-sponsored health plans.

Extension of Advanced Premium Tax Credits (APTC) for Individuals Participating in the Health Care Marketplace (Exchange)

The parameters for qualifying for the APTC were temporarily expanded under the American Rescue Plan Act (ARPA) beyond 400% of the Federal Poverty Level (for 2021 and 2022). This expansion was extended through the end of the 2025 calendar year under the newly enacted Inflation Reduction Act (IRA). In addition, ARPA and IRA established increased income bands to establish the percentage of household income a taxpayer must pay towards medical premiums to qualify for the APTC. Because of the expansion, there may be greater potential for full-time employees to trigger an Employer Shared Responsibility Payment (play-or-pay penalty) if they forego employer-sponsored coverage or are not offered coverage through an Applicable Large Employer (ALE).

If the employer does not offer an employee minimum essential health coverage that is affordable and of minimum value and the employee goes to the Exchange and gets the Advanced Premium Tax Credit (APTC), the employer must pay a penalty under Internal Revenue Code (IRC) §4980H.

• IRC §4980H(A) Penalty: If the ALE (defined as an employer having 50 or more full-time and full-time equivalent employees on average during the previous calendar year) fails to offer substantially all (at least 95%) full-time employees at least minimum essential health coverage, a monthly penalty of $229.17 (one-twelfth of $2,750, times the total number of full-time employees minus the first 30) applies in 2022 to each month that at least one full-time employee obtains Marketplace coverage and qualifies for the APTC.
• IRC §4980H(B) Penalty: If an ALE offers minimum essential health coverage to substantially all full-time employees, but the offer of coverage to one or more full-time employees is unaffordable or does not constitute minimum value, such full-time employees who waive the group health plan, enroll in the Marketplace plan and qualify for the APTC will trigger this penalty. For 2022, the monthly employer shared responsibility payment is one-twelfth of $4,120 (which equates to $343.33 for each month each eligible full-time employee goes to the Exchange and gets subsidized coverage) times the number of employees qualifying for the APTC.
• The affordability threshold and penalties are indexed each year for inflation.

While the expansion of the parameters for qualifying for the APTC makes it more likely that employees will qualify for the APTC based on their annual household income, the expansion does not affect whether an employer’s coverage is considered affordable. Employers who offer coverage where the lowest cost employee-only option meets one of the affordability safe harbors are still considered to have offered affordable coverage. The expansion does not change the affordability safe harbors or how they are calculated.

Regulatory and Legislative Strategy Group