How the ACA's Family Glitch Can Make Health Insurance Unaffordable

For people who don't have access to employer-sponsored insurance, the ACA includes subsidies to make health insurance affordable. But not everyone fits neatly into one of those two categories. Some people have access to an employer-sponsored plan, but can't afford the premiums. For some of them, the ACA provides relief. But for about five million Americans in this situation, there's no good solution at this point.

Family glitch leaves some families without access to affordable health insurance
John Lund / Getty Images

Who's Caught in the Family Glitch?

That's because they're stuck in what's known as the ACA's "family glitch" and don't have access to affordable coverage from an employer or subsidies through the exchanges.

Here's the problem: In order to be eligible to get premium subsidies in the exchange, the second-lowest-cost Silver plan in your area has to cost more than a certain percentage of your income (note that there's normally an income limit of 400% of the poverty level to qualify for premium subsidies, but that has been eliminated in 2021 and 2022 by the American Rescue Plan). But there's also another factor: Eligibility for subsidies depends on whether or not a person has access to an employer-sponsored plan that provides minimum value (covers at least 60% of average costs and includes substantial coverage for inpatient and physician care) and is considered affordable. For 2021, that's defined as coverage that doesn't cost more than 9.83% of household income for just the employee's coverage. (This percentage was not changed by the American Rescue Plan, despite the fact that the law reduced the percentage of income that people have to pay for self-purchased coverage in the marketplace)

If the employee has family members, the extra cost to add them to the employer-sponsored plan isn't taken into consideration when determining whether or not the employer-sponsored plan is "affordable." Since most employers pay a significant portion of their employees' health insurance premiums, most employer-sponsored plans are considered affordable. And that "affordable" classification extends to the family members' coverage as well, even if the employer doesn't pay any of their premiums at all.

As an example, consider a family of five with a total household income of $60,000/year. That puts them at about 196% of the 2020 poverty level, which is used to determine eligibility for 2021 premium subsidies.

Let's assume that one parent's employer offers a good health insurance plan, and pays most of their employees' premiums. So the family only pays $100/month deducted from the paycheck to cover just the employee's premium. That's just 2% of their income—well under the 9.83% threshold—so the coverage is considered affordable. 

But what if it costs the family an extra $900/month to add the spouse and children to the employer-sponsored plan? Some employers don't cover any of the premium to add dependents, so this is not an uncommon scenario. Now the total payroll deduction for health insurance is $1000/month, which is 20% of their household income. But the whole family is still considered to have access to "affordable" employer-sponsored health insurance, because the affordability determination is based solely on what they pay to cover the employee, not the employee plus dependents and/or a spouse.

It's noteworthy that if the family had no access to employer-sponsored coverage at all, and had to purchase their own coverage, they would qualify for a premium subsidy that would bring the total family premium for the benchmark plan down to just 1.84% of their income in 2021 (with the American Rescue Plan's provisions in effect).

How Did This Happen?

The details of how the affordability of employer-sponsored coverage would be determined were clarified by the IRS in a final rule they published in 2013. And although the problem is widely referred to as the "family glitch," it's not really a glitch in the sense that it was carefully considered by the Government Accountability Office and the IRS before the regulations were finalized.

The concern was that if dependents in this situation were able to obtain subsidies in the exchange, it would increase the total amount that the government has to pay in subsidies. Since employers only have to make coverage meet the "affordable" criteria for their employees, there were worries that employers might cut back on the contributions that they make to dependents' health insurance premiums, thus sending even more spouses and kids to the exchanges for subsidized coverage.

Subsequent analyses have confirmed these assumptions; if affordability was based on the cost of coverage for all eligible family members, enrollment in the exchanges would grow significantly, and so would government spending on premium subsidies.

Can We Fix It?

Former Minnesota Senator Al Franken introduced the Family Coverage Act (S.2434) in 2014 in an effort to eliminate the family glitch. But the legislation didn't go anywhere because of concerns that a fix would be too costly (more people would qualify for subsidies, which are funded by the federal government). Hillary Clinton also proposed fixing the family glitch as part of her presidential campaign platform, but ultimately lost the election to Donald Trump. 

Republicans in Congress have largely focused on repealing and replacing the ACA rather than fixing it. But the ACA remains almost entirely intact as of 2021, with the exception of the individual mandate penalty, which was eliminated at the end of 2018, and some of the ACA's taxes, which were repealed as of 2020 or 2021.

In 2018, Democrats in the House and the Senate introduced healthcare reform legislation that included fixing the family glitch by basing the affordability determination for employer-sponsored health insurance (for exchange subsidy eligibility determination) on the cost of family coverage instead of employee-only coverage. Similar legislation (H.R.1884 in the House and S.1213 in the Senate) was introduced in 2019, although the bills did not progress.

In 2021, Republicans remain fairly focused on repealing and/or replacing the ACA, and have little appetite for improving it. Democrats are somewhat split, with some members of the party pushing for a single-payer system, while others are focused on strengthening the ACA—including fixing the family glitch. But it's also possible that the Biden administration could be able to fix the family glitch administratively, rather than having to rely on legislation.

Fortunately, many of the children who would otherwise be caught in the family glitch are eligible for CHIP (Children's Health Insurance Program). But for those who aren't, and for spouses who are in the family glitch, coverage can still be out of reach, despite the fact that it's technically considered affordable. And although the American Rescue Plan has made coverage more affordable for millions of people who buy their own health plans, it has not changed anything for people who are made ineligible for subsidies due to the family glitch.

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