IRS Posts 2023 Employer Coverage Affordability Limits

The Internal Revenue Service has set the numbers that will determine what employer-sponsored health coverage is “affordable” in 2023.

The Affordable Care Act public exchange system will use the new cutoffs, given in IRS Revenue Procedure 2022-34, when deciding whether to provide ACA health insurance premium tax credits for workers who would rather get their own individual coverage from an exchange, rather than using an employer’s health plan.

The top affordability cutoff, for workers in households with income from 300% to 400% of the federal poverty level, will increase to 9.12% in 2023 from 8.5% this year.

What It Means

Some clients who would prefer to get their own exchange plan coverage, rather than using employer coverage, may have a harder time doing that next year.

The ACA System

Congress created the ACA public exchange system in 2010 in an effort to offer moderate-income people a way to use federal tax credits to pay for high-quality commercial health coverage.

The exchange system came to life in late 2013, with the first coverage sold taking effect in 2014.

The ACA requires most workers to take up employer-sponsored coverage, rather than using the subsidies to pay for exchange plan coverage, but it does let workers who are offered employer coverage that fails to meet federal minimum value or affordability standards use the premium tax credit subsidies.

Pandemic Period Changes

Congress temporarily eased many ACA premium tax credit subsidy rules after the COVID-19 pandemic hit, in an effort to help people and health care providers get through the pandemic.

One change Congress made was to lower employer coverage affordability percentages.

Because of the emergency rules, the affordability percentages were much lower this year than they were in 2021. Although the 2023 percentages will be higher than this year’s percentages, they will be lower than the 2021 percentages.

The Percentages

Here are the affordability cutoffs for workers at various household income levels, with income levels expressed as percentages of the federal poverty level:

• Less than 133%: 1.92% (up from 0% this year, and down from 2.07% in 2021).
• 133% of the federal poverty level: 2.88% (up from 0% this year, and down from 3.1% in 2021).
• 150% of the federal poverty level: 3.84% (up from 0% this year, and down from 4.14% in 2021).
• 200% of the federal poverty level: 6.05% (up from 2% this year, and down from 6.52% in 2021).
• 250% of the federal poverty level: 7.73% (up from 4% this year, and down from 8.33% in 2021).
• 300% of the federal poverty level: 9.12% (up from 8.5% this year, and down from 9.83% in 2021).
• 400% of the federal poverty level: 9.12% (up from 8.5% this year, and down from 9.83% in 2021).

This year, in most of the United States, 100% of the federal poverty level is $13,590 for an individual and $27,750 for a family of four; 400% of the federal poverty level is $51,520 for an individual and $106,000 for a family of four.

If, under current 2023 rules, you have a married client with two children, the couple have an annual “modified adjusted gross income” of $106,000, and 2023 employer coverage for just the client costs the client less than $868 per month, the ACA public exchange system will likely classify the client’s employer coverage as being affordable and refuse to offer the client premium tax credit subsidies.

The Family Glitch

One famous ACA employer coverage affordability issue is that federal agencies have decided that employer coverage is affordable for a worker if “self-only” coverage for the worker is affordable.

The ACA public exchange system does not consider whether a worker can get affordable coverage for spouses, children or other household members. Critics of that approach refer to it as the “family glitch.”

The IRS and other agencies proposed in April that the exchange system take the affordability of family coverage into account when determining whether workers qualify for premium tax credits.

Some officials have suggested that the agencies will need authorization from Congress to eliminate the family glitch.

Congressional Budget Office analysts estimated in July that eliminating the family glitch would increase the number of people with individual and family coverage by an average of about 900,000 each year from 2023 through 2032.

The change would cost the federal government about $44 billion over that 10-year period, years, or about $4,900 per additional covered person per year.

(Photo: Allison Bell/ALM)