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IRS rules eliminate way to cut health care premium costs

IRS rules eliminate way to cut health care premium costs

Final Internal Revenue Service health care reform law affordability rules eliminate a potential but much-discussed plan contribution design that could have cut premium costs for employers and employees.

Those rules, published Wednesday, affirm previously proposed rules involving a Patient Protection and Affordable Care Act affordability requirement. Under the reform law, if employer coverage is not affordable, employers are liable for a $3,000 penalty for each full-time employee whose required premium contribution does not meet the affordability test and receives a premium subsidy to buy coverage in a public health insurance exchange.

Affirming previously proposed regulations, the final rule said the requirement only applied to self-only coverage, with coverage considered unaffordable if employees' premium contribution for that coverage exceeds 9.5% of household income.

The final rule dashed hopes that the IRS would in its final rules expand the affordability test to apply to family coverage.

While the health care reform law is clear that the $3,000 penalty on employers for each full-time employee applies when the required employee premium contribution for single coverage exceeds 9.5% of household income, some health care experts thought the IRS might modify the affordability test. Under such a modification, federal premium subsidies would be available when family coverage premiums exceed the 9.5% affordability test, though employers would face the $3,000 penalty only when premiums paid by employees for single coverage exceeded 9.5% of household income.

If that had happened, an employer could have designed its health care plans to require low premium contributions for single coverage but high employee premium requirements for family coverage. Lower-income employees then would have been entitled to federal premium subsidies to purchase coverage in an exchange, slashing an employer's cost and the employees' costs as well.

“That is something some employers were looking at it,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

But the IRS quashed that cost-saving but theoretical plan when it affirmed in the final rule that premium subsidies only would be available if the cost of single coverage exceeds 9.5% of family income.

“The final rule is not consistent with the intent of Congress. Today, the promise of health reform has been denied for hundreds of thousands of children,” Bruce Lesley, president of First Focus, a Washington-based child advocacy organization, said in a statement.

But it is unlikely that lawmakers would expand the premium subsidy given the high costs to the government of such an expansion, observers say.

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