I have made reference in prior columns to the “family glitch” in the ACA (Affordable Care Act aka Obamacare). This part of the Act prevents dependents from enrolling for subsidized coverage on the Exchange if one of the spouses is offered “affordable coverage” by their employer.
If the employee’s share of cost for an ACA compliant group health plan exceeds a stated percentage of the employee’s household income, the plan is deemed to be “affordable” and no subsidy is allowed for any family members. Total household income includes income from everybody in the household who’s required to file a tax return. This is the “family glitch”. Following is an example of the calculation from www.healthcare.gov
- Employee’s monthly household income = $4,083 (about $49,000 per year)
- 9.61% of the employee’s monthly household income = $392
- Monthly cost to the employee of the lowest-priced plan the employer offers for self-only coverage = $300
- Is the plan affordable? YES. The employee’s share of the lowest cost self-only plan ($300) is less than 9.61% of the employee’s household income ($392).
The problem is that this approach does not address the fact that dependent coverage under the group plan could be prohibitively expensive and bring the total cost to much more than 9.61% of family income.
The Kaiser Family Foundation (KFF) estimated in a 2021 report that “more than 5.1 million people fall in the family glitch.” These families are likely spending far more for health insurance coverage than individuals with similar incomes who are fully eligible for financial assistance on the ACA Marketplaces. These families could spend less on premiums if they could enroll in Marketplace plans and qualify for subsidies. One study estimates that they could be spending as much as 15% of family income on health insurance!
This has often created a quandary for small employers who want to provide benefits for employees but could not afford the dependent premiums. In some cases, they would actually hurt the employees by offering coverage, because the rest of the family would not qualify for subsidies, making the premium burden for the family much heavier than if no benefits had been offered by the employer.
Essentially the new rule allows families that would be paying more than 10% of the family income for health insurance to obtain subsidies through the marketplace Exchanges created by the ACA. In California it is called Covered California and can be accessed at CoveredCA.com. Eliminating the “glitch” is expected to cost about $4.5 billion annually for 10 years, according to the Congressional budget office.
In response to President Biden’s Executive order to help make health insurance more affordable, the IRS published the proposed rule change (RIN 1545-BQ16) on April 7. There will be public hearing in June with a target effective date of 1/1/2023. This follows the American Rescue Plan which created even greater subsidies toward the administration’s goal of reducing health care costs for individuals.
Employers were concerned that changes to this rule would incentivize the young and healthy to leave the employer sponsored plans, leaving them with the older sicker patients. That is still a possibility.
Another issue is splitting coverage for families. For example the wife may have group coverage through an employer with a renewal date of any time during the calendar year. There is typically a family “out of pocket” maximum threshold on the plans. If family members are insured in different plans, claims will not be aggregated toward the family maximum on the separate plans.
Even so, this stands to help Shasta County residents whose employer sponsored plans have not historically subsidized dependent premiums on the group plans. Depending on how the rules are finalized, an employee could enroll in the employer plan and enroll dependents in a plan with Covered CA at a much reduced cost due to the generous premium subsidies.
With the increased competition for employees, some employers are taking a second look at this option to provide family benefits. This proposed change should factor in to the decision making process if passed for 2023.
