When the Affordable Care Act (ACA aka Obamacare) was passed, there was a glitch that prevented some families from obtaining subsidized coverage and discouraged small employers from offering group coverage. This is known as the “family glitch’. It is estimated that 593,000 Californians and 5.1 million Americans have been affected by the family glitch.
In essence, it provided that if an employee was offered “affordable coverage” as employee only, the entire family was ineligible for subsidies to help cover the rest of the family outside the employer plan. This effectively ignored the fact that often employers pay 100% of the employee premium, but nothing for dependents. Premiums for a full family could easily exceed $1000 monthly, clearly not “affordable” for the family.
The subsidies are technically Advanced Premium Tax Credit (APTC). This tax credit, not deduction is provided to the taxpayer in advance of filing the return. A credit is a $1 for $1 offset to taxes, therefore more valuable than a deduction that subtracts the allowed item from taxable income. The subsidy is applied immediately and deducted from the premium due, providing a substantial immediate benefit.
The taxpayer is required to estimate income for the coming year to calculate the subsidy and the figures are reconciled when the tax return is filed for the year. If the income is underestimated, more taxes could be owed, if overestimated a refund may be due.
Coveredca.com is the website where Californians may be purchase individual coverage. There is a calculator available at Coveredca to help estimate how this new rules will effect a family.
For example a family with income of $75,000 whose employer offered no cost coverage to the employee, but charges $750 monthly to cover the rest of the family would receive no subsidy under the prior rules. Now, since this premium is 12% of family income, exceeding the 9.12% threshold for affordability. The employee can maintain the employer plan and insure the rest of the family through CoveredCA and receive financial help.
This is a very big deal. Often employers who offered coverage and paid 100% for the employee but nothing for the dependent were in a position of penalizing employees with families as they were disqualified from receiving help. This was a difficult position for employers.
In the example above, a family of 4 with parents age 45 and children age 10 and 12 would receive a subsidy of $1159 monthly! This would allow them to buy a Silver plan for $301 monthly for the rest of the family and a Bronze Plan for as low as $8.58. Applications must be received by 12/31 for 1/1 effective date. Open enrollment ends 1/31.
Consumers may be required to upload documentation of eligibility. One continuing glitch is that employers with less than 50 employees are not required to document an offer of coverage, so the IRS is relying on the taxpayers’ honesty about offers of affordable coverage when working for a small employer.
The ACA was targeted to help those whose income fell below 400% of the Federal Poverty Level (FPL). Recent expansions now extend benefits to those earning up to 600% of the FPL. Here in Shasta County with about 40% of our population on MediCal, you can be assured this will be valuable to our citizens.
According to the Kaiser Family Foundation most of those who fall into the family glitch self-report as being in good to excellent health. Theoretically, if these folks then purchase insurance, loss ratios should be reduced because there are more healthy people in the pool. This should reduce premiums. However, the federal government is expected to increase spending by about $45 billion over 10 years with this expansion.
I applaud the repair of this glitch and the effect it has on families. Frequent readers of this column, know that I have serious issues with our health care system, both in the delivery and financing. The next step is to address the real cost of health care, not just the premiums paid. With a divided Congress that can barely agree if the sun has come up, this will be a real challenge.
It is time that obstructionist politics be put away in favor of thoughtful and considered action. Why do Americans pay so much more for health care and yet have worse outcomes than other industrialized nations? Several books have addressed this in detail. As one wise sage said, “Who knew healthcare was so complicated?” Yes, it is complicated but it can be fixed. Nothing worthwhile tends to be easy.
