Consider this scenario, Paul, Mary and their two children live in Morrisville, NC. Mary works for SAS, Paul is a stay at home dad and a part-time brewer. SAS offers Mary a generous employee benefits package and covers 100% of the monthly premium for her health insurance. With her plan, Mary can also cover Paul and the children but SAS does not giver her any money to offset the cost of the three additional premiums. Coverage for Paul and the kids is $1,600, the lion-share of her paycheck. So she covers the children, but can’t afford the coverage for Paul. Paul, without insurance, purchases his policy from the Marketplace. He pays $600 a month but because SAS offers a plan that meets the ACA affordability requirements . A person is only eligible for premium subsidies in the exchange if they are not eligible for affordable employer-sponsored health insurance. So if a family’s employer-sponsored coverage offer was considered “affordable” (based on the cost to cover just the employee) and provided minimum value, the entire family was ineligible for subsidies in the exchange.
This is the Family Glitch. Families like Paul and Mary’s, who have found themselves unable to afford employer sponsored health plans and also locked out of obtaining subsidies because of the employers offer of coverage will now find some relief with the Biden administrations change to the IRS regulation that created this “glitch” in 2013.
The rule change is fairly simple and straightforward: Instead of basing the affordability determination for a family’s employer-sponsored health insurance on just the cost to cover the employee, the determination will now be made based on the cost to cover the employee plus family members, if applicable. Here are the important points to understand about this:
- The family glitch fix will be in effect as of 2023. So when families apply for 2023 coverage during the open enrollment period in the fall of 2022, the new rules will be used to determine whether anyone in the household qualifies for a premium subsidy.
- If a family has to pay more than a certain percentage of household income (9.12% in 2023) for the employer-sponsored plan, they will potentially be eligible for premium tax credits in the marketplace.
- There will be a separate affordability determination for the employee (based on self-only coverage), and for family members (based on the total cost of family coverage). So depending on how an employer subsidizes the cost of family coverage, it’s possible that coverage could be considered affordable for the employee but not for family members. In that case, the family members would potentially be eligible for a premium tax credit in the marketplace, but the employee would not.
- This rule will not change the ACA’s employer mandate. Large employers will still have to provide affordable, minimum-value coverage to their full-time employees, and offer coverage to those employees’ dependents (offering coverage to spouses is optional). But there will still be no affordability requirements as far as the coverage that’s offered to dependents. The employer mandate penalty is only triggered if an employee’s coverage is unaffordable and they receive a premium tax credit in the marketplace. There is no mechanism for triggering the penalty based on an employee’s family members receiving premium tax credits in the marketplace.
- If a family has some members on a marketplace plan and others covered under one or more employer-sponsored plans and/or Medicare, the family’s total premium costs could still be somewhat unaffordable. Premium tax credits currently ensure that households don’t have to spend more than 8.5% of household income to buy the benchmark plan, but that’s only applicable to the marketplace premiums.
- The cost to cover non-dependent family members will not be taken into consideration. So for example, young adults can remain on a parent’s health plan until they turn 26, but are generally not considered a tax dependent for the last few years of that window. So if they enroll in the family plan, the cost to cover them is not counted when the affordability of the family plan is determined. (Young adults in this situation can already apply for premium subsidies in the marketplace based on their own income, and the fact that they have the option to be added to a parent’s employer-sponsored health insurance is not taken into consideration.)
- In conjunction with the rule change that fixes the family glitch, the IRS has issued Notice 2022-41, which allows employees to make a coverage election change to remove family members from an employer-sponsored plan as of January 2023, in order to take advantage of newly-available premium subsidies in the marketplace. So even if your employer-sponsored plan doesn’t follow the calendar year and you would not normally be able to make a mid-plan-year change to your coverage, this will now be allowed for people who are enrolling some of their family members in a marketplace plan as of 2023. This means that regardless of whether your employer-sponsored plans renews on January 1 or some other date, you can enroll some members of your household in marketplace plans during the open enrollment period in the fall of 2022, and remove them from your employer-sponsored plans as of January 2023.
This rule change will arguably make the purchase of health insurance more confusing for some, but in a market where “one-size-doesn’t-fit-all,” this new rule will create more “one size does fit all” moments.
Biden Administration Announces Finalized Rule to Fix “Family Glitch” in ACA
