July 5, 2022

Health Insurance

Follow Your Health Insurance

The family glitch in Affordable Care Act and IRS revision | EBA

The U.S. healthcare system has already driven over 20 million Americans into debt, and for families, the financial burden of care costs is even harder to escape. While presented as a solution to high healthcare costs, the Affordable Care Act has been anything but. 

According to the Kaiser Family Foundation, 5.1 million people are impacted by the Affordable Care Act’s “family glitch,” which does not allow workers with families to qualify for affordable health insurance plans within the ACA Marketplace, even if their employer doesn’t provide an affordable alternative. Kaiser estimates that children take the brunt of this stipulation, with nearly 2.8 million Americans under the age of 18 affected by this glitch.

“The whole goal of the Affordable Care Act was to make sure everyone had affordable access to healthcare by first ensuring that the employer would be offering their employees affordable coverage,” says John Staub, a brand development manager at Remodel Health, a health benefits management platform for employers. “If you did not have affordable coverage from an employer, you could go to the ACA Marketplace, find affordable coverage, and be subsidized with an advanced premium tax credit.”

Read more: The Biden administration is taking action against medical debt — but is it enough?

However, the family glitch is a loophole to the foundational goals of ACA, because it removes the employee’s dependents from the affordability equation. As it stands, people qualify for ACA Marketplace subsidies if their employer requires them to spend more than 9.83% of their income on the company health plan premium. But this qualification is solely based on the employee’s “self-only” coverage, and not the premium costs that come with adding dependents. Basically, as long as an employer offers an employee-only plan that meets the income requirements and is deemed affordable for the individual, the IRS will not consider that employee or their family as in need of ACA help. 

“An employee might only have to spend $100 a month to get themselves on a plan,” says Staub. “But to include their family, they could see costs at $1,200 a month and they would have to pay full price. They get no subsidies.”

Staub chalks up this current interpretation of ACA as a mistake that was realized too late, noting that many government leaders were skeptical of the ACA’s staying power when it was first established in 2010 and may not have felt the need to address gaps in the legislation. But over a decade later, the ACA is still providing health insurance for millions of Americans, who increasingly rely on these plans to combat rising healthcare costs. 

Read more: What the No Surprises Act means for your medical bills

Fortunately, the IRS proposed a revision of the family glitch on April 5 of this year, in response to the Biden administration’s push to strengthen the ACA and Medicaid. Staub estimates that this revision could go into effect as early as Jan. 1, 2023. Still, there’s no guarantee that the proposal will be finalized without delay. 

In the meantime, Staub encourages employers to at least offer guidance to their employees, in place of offering higher contributions to their employees’ family coverage. 

“Employers need to be talking with their broker or consultants, and have a mechanism where they can inform employees on how to evaluate what their new opportunities might be so that their families are taken care of,” says Staub. “Their family might be able to get better coverage on the [ACA] Marketplace, but they need help navigating it.”

Read more: Why insurers may be breaking the law with restrictive mental health coverage

This could mean having a consultant that specializes in the ACA Marketplace and follows the consistent updates in ACA rules and qualifications. Regardless, employers have to show their employees they care, or the family glitch will inadvertently be another reason to quit, explains Staub. 

“We’ve seen employees leave jobs by the millions to make sure that their families get more affordable health benefits,” he says. “Inflation and the cost of healthcare, combined with a post-pandemic economy in the midst of the Great Resignation is the perfect storm. But it’s finally forced lawmakers involved in the regulatory process to engage.”