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

Family glitch leaves some families without access to affordable health insurance
The ACA's "family glitch" leaves some families stuck with no affordable health insurance option. John Lund/Getty Images

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 between two and four million people, there's no good solution at this point.

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, you must have a household income that doesn't exceed 400% of the poverty level, and the second-lowest-cost Silver plan in your area has to cost more than a predetermined amount. 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 2019, that's defined as coverage that doesn't cost more than 9.86 percent of household income for just the employee's coverage.

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 single income of $60,000/year. They're well below the income cut-off for subsidy eligibility in 2019 (400% of the poverty level for a family of five is $117,680 for determining eligibility for 2019 tax credits). Let's assume that the working 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 percent of their income—well under the 9.86 percent 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.

How did this happen?

All of this was 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.

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 focused on repealing and replacing the ACA during the 2017 legislative session, but the various measures they proposed did not pass, and the ACA remains almost entirely intact (the individual mandate penalty will be eliminated after 2018, as a result of the GOP tax bill that was enacted in late 2017).

In 2018, Democrats in the House and the Senate introduced health care 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. Neither bill advanced in the GOP-controlled Congress, but Democrats regained control of the House in the 2018 election, so health care reform legislation could gain traction in the House during the upcoming session.

It remains to be seen whether the family glitch will eventually be fixed. 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.

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