A “family glitch” sounds like a minor mix-up, like missing dinner. But when talking about health insurance under the Affordable Care Act, it means a costly loophole.
The glitch refers to federal rules that make it hard for relatives of people with job-based health insurance to qualify for financial help in buying more affordable coverage on government marketplaces.
The Biden administration has proposed fixing the problem with a regulation that revises an interpretation of the rules for tax credits under the act, nicknamed Obamacare. If the change is finalized, hundreds of thousands of people — mostly children of lower-income families and women — could become eligible for more affordable coverage.
“These folks have been left out,” said Katie Keith, director of the Health Policy and the Law Initiative at Georgetown University Law Center.
Affected families would save an average of $400 per person a year on health insurance premiums once the glitch is fixed, and low-income families would save even more, the Urban Institute estimates.
What exactly is this glitch? If a family member can get affordable individual health coverage through a job — even if the cost of covering the worker’s dependents is too steep — the rest of the family generally can’t qualify for tax credits to help buy lower-cost insurance on the federal website HealthCare.gov or the state insurance marketplaces.
A workplace plan is considered “affordable” if the premium for covering just the employee — not a spouse or children — is less than about 10 percent of the family’s income. Family premiums, however, are typically higher and may exceed that threshold.
The problem is that the affordability test doesn’t take into account the cost of insuring the whole family. “It only considers coverage for the actual employee,” said Jodi Ray, director with Florida Covering Kids & Families, an initiative at the University of South Florida College of Public Health that works to enroll uninsured people in affordable health coverage. “It really disadvantages people.”
The average premium paid by a covered worker for single coverage in 2021 was $108 a month, compared with $497 for family coverage, according to the Kaiser Family Foundation.
The glitch means that families end up paying higher and less affordable premiums for the job-based health insurance — or skipping coverage altogether.
About 90 percent of people affected by the glitch are buying coverage deemed unaffordable, according to the Urban Institute’s analysis. In other words, while most people affected by the glitch enroll in coverage rather than going uninsured, “they’re paying through the nose,” Ms. Keith said.
If the glitch is fixed, the cost of job-based coverage would need to be considered affordable for the entire family. If the coverage wasn’t affordable, the rest of the family — other than the covered employee — would then qualify to shop on the exchanges, using tax credits to reduce their premiums.
The fix isn’t perfect, says Cynthia Cox, director of Kaiser’s Program on the Affordable Care Act. If the workplace plan is affordable for the employee — say, the mother in the family — she would need to enroll in that plan, while her spouse and children sought lower-cost marketplace coverage. That would mean paying two separate premiums and meeting two deductibles, which might not be more affordable, and perhaps navigating two provider networks.
That’s partly why, although an estimated five million people are affected by the glitch, far fewer would probably take advantage of the newly available tax credits. The Urban Institute estimated that 710,000 more people would enroll in marketplace coverage with tax credits. Another 90,000 — mainly children — would enroll in coverage through government plans like Medicaid and the Children’s Health Insurance Program because the Obamacare marketplace automatically checks eligibility for those options.
The Biden administration estimates that 200,000 uninsured people will gain health coverage, and nearly one million will have more affordable coverage under its proposed fix.
The proposal comes as expanded health insurance subsidies, offered to Americans during the Covid-19 pandemic, are set to expire. The pandemic relief, which made it temporarily easier for people to get affordable coverage on the government marketplaces, was approved through 2022. To extend the help or make it permanent, Congress must act. If the extra help is continued, fixing the family glitch would result in even greater savings for families, according to an analysis by Third Way.
Here are some questions and answers about health insurance and the family glitch:
How would the new proposal fix the family glitch?
The Internal Revenue Service and the Treasury Department, which administer the premium tax credits available under the Affordable Care Act, are proposing a revised interpretation of the affordability rule. The I.R.S., according to the proposal published in the Federal Register, now says that the law “is best interpreted” to require consideration of the cost to cover not just the worker “but also other members” of the family who may enroll in the employer’s coverage. This new interpretation would “create consistency” under the Affordable Care Act, the proposal says.
What happens next?
The I.R.S. is inviting comments on the proposal until June 6. The public can submit comments online. The agency will hold a public hearing June 27, if there is enough interest, and it will establish an effective date when it publishes the final rule.
Will the fix be in place for the next open enrollment period for Obamacare?
Open enrollment for 2023 coverage is scheduled to start on Nov. 1, according to the HealthCare.gov. (Some states operate their own marketplaces, and dates may vary.)
The I.R.S. and the Treasury Department say in the proposal that they have been “working closely” with the Department of Health and Human Services to make sure HealthCare.gov can put the change into effect before open enrollment.
That’s a tight timeline, as health insurers typically determine rates well in advance, said Timothy S. Jost, emeritus professor at Washington and Lee University School of Law. But many, he said, are probably already factoring the fix into their calculations.
Health insurance and hospital groups have voiced support for the new rule. But Obamacare has long been opposed by many Republicans, and it’s possible that objections could be raised during the comment period or in the courts. Three Republican senators questioned the proposal in a letter to the I.R.S. this month.
But legal experts like Mr. Jost have argued that the administrative fix is proper. “Because the glitch was created by regulation, it can be fixed by regulation; new legislation is not necessary,” he wrote about the fix.
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