IRS fixes the “family glitch” for Marketplace subsidy eligibility

On October 13, 2022, the Internal Revenue Service (IRS) unveiled its long awaited final regulations to fix the Affordable Care Act’s “family glitch” rule. When an employer offers coverage to an employee and any family members, the existing family glitch rule requires the public health insurance exchange (the “Marketplace”) to determine whether coverage offered to a family member is affordable for subsidy purposes based on the cost of employee-only coverage to the employee instead of the actual cost of coverage for covering the family member. On the same day, the IRS also released Notice 2022-41 providing an optional qualifying life event for employer cafeteria plans allowing employees to drop family members from medical coverage mid-year to account for their corresponding enrollment in subsidized Marketplace coverage.

This Alert provides a summary of the family glitch issue, the changes made under the final regulations and corresponding IRS cafeteria plan relief, and what all of this means for employers offering medical coverage.