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IRS: PPACA affordability test for employee only, not family

By - Last modified: February 4, 2013 at 10:07 AM

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The 2014 requirement that large employers provide affordable health insurance or pay a penalty will apply only to employees, not their families, according to the Internal Revenue Service.

The IRS has released final regulations stipulating that businesses with 50 or more full-time-equivalent employees must provide insurance that does not cost more than 9.5 percent of the worker's household income for worker-only coverage. A requirement that those companies offer coverage to employees' dependents starts phasing in next year and will be required in full in 2015, but that coverage does not need to meet the affordability test.

Businesses with fewer than 50 employees are not required to provide health insurance under the Patient Protection and Affordable Care Act.

The IRS also issued separate but related final regulations about the individual insurance mandate. Those regulations specify that individuals are exempt from the penalty if their required premium contribution for the lowest-cost coverage in the health insurance marketplace (formerly called an exchange) exceeds a set percentage of their household income. For 2014, it is set at 8 percent.

Numerous other exemptions to the individual mandate penalty also apply.

Analysts are still evaluating the impact of the regulations, but it appears that the availability of employee-only health insurance at no more than 9.5 percent of household income disqualifies that employee from eligibility for tax credits on the insurance marketplace. However, if the cost of employer-provided health insurance for that employee is between 8 and 9.5 percent of household income, it appears that the employee is exempt from the individual mandate penalty.

Dependent and spouse eligibility for tax credits in the exchanges and exemption from the individual mandate penalty are calculated separately from the employee's, according to the regulations.

Health Care Reform Resource Center

Stay up to date on the latest PPACA news every weekday by going to our Health Care Reform Resource Center. You'll also find links to handy resources, health care reporter Heather Stauffer's latest blog posts, and a spot to replay our live chat with Conrad Siegel actuary Rob Glus, who is a member of our expert advisory panel.

Heather Stauffer

Heather Stauffer

Heather Stauffer covers Lancaster County, nonprofits, education and health care. Have a tip or question for her? Email her at heathers@cpbj.com. Follow her on Twitter, @StaufferCPBJ.

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