An IRS proposal that would make it easier for families to get subsidies for health insurance in the Obamacare exchanges would help businesses that would no longer need to pay some of those costs, health insurance brokers say.
The proposal (RIN 1545–BQ16) published in the Federal Register on April 7 would change current regulations to allow family members that qualified to get subsides in the Affordable Care Act exchanges. Currently, family members are excluded from ACA subsidies if anyone in a household has access to an employer-sponsored plan that meets ACA requirements for affordability and coverage, which has been dubbed the “family glitch.”
ACA supporters have long advocated for allowing family members to get the subsidies, arguing that many families can’t afford coverage even if they have someone in their household who has employer coverage. But the proposal is costly, estimated at more than $45 billion from 2020 to 2030, and White House estimates show it would lead to only 200,000 uninsured people gaining coverage.
The rule, if finalized, could also be subject to legal challenges. In a May 11 letter to IRS Commissioner
More than 5.1 million people fall into the “family glitch,” the Kaiser Family Foundation estimates. The White House estimated nearly 1 million people would get more affordable coverage. The Urban Institute estimated that 585,000 people would move out of employer coverage, decreasing employer spending by about $2 billion a year.
Businesses Would ‘Absolutely’ Benefit
Businesses would “absolutely” benefit from family members leaving company plans to get subsidies in the exchanges, Adam Rochon, co-owner of Sequoia Employee Benefits & Insurance Solutions in Exeter, Calif., said in an interview.
“They struggle to try to find that balance of being able to provide affordable care for their employees, but it’s even more difficult to provide affordable care for their employees’ family,” Rochon said. Trying to plan for health-care costs is less predictable if employers commit to covering family members, he said.
Most of the approximately 100 small businesses Rochon works with don’t offer family coverage for that reason, he said. If they do, they are unable to cover costs to make it affordable for employees, Rochon said.
Allowing family members to get exchange subsidies will save money for companies that pay some family coverage costs, Rochon said. “Then they’re not pressured to provide the costs for the families’ insurance. And even if they are doing it now to a small degree, then the families will still be able to get that coverage elsewhere and it takes the burden off of the employer,” he said.
In many cases, “the families would benefit from having the opportunity to go to the exchange” and get subsidized coverage, Rochon said.
Rochon is part of the network of Small Business Majority, a group that issued a statement on the family glitch supporting the IRS proposal.
Small businesses may see the greatest movement of family members to exchanges if the proposal is finalized. “Particularly for small businesses, given that those are family members who are most likely to be better off being in the exchange, so they might see more movement” away from company plans, Karen Davenport, who wrote an article on the issue for Georgetown University’s Center on Health Insurance Reforms, said in an interview.
Many small businesses make a contribution toward family coverage, Davenport said. However, “It isn’t necessarily enough to make it affordable under the ACA in terms of what the family pays in premiums. So businesses could still see savings,” she said.
‘Huge’ For Businesses of All Types
“We think it’s going to be huge for businesses—small, large, white-collar, blue-collar,” Jack Hooper, founder and CEO of health insurance broker Take Command Health, said in an interview.
Companies most likely to benefit are smaller companies that must offer coverage that meets ACA requirements, Hooper said. Companies with at least 50 full-time employees must offer qualified coverage or pay large fines. The coverage offered must meet the definition of what is affordable for the individual employee, 9.61% of their income.
However, companies are not required to provide coverage that is affordable for family members, which costs an average of $22,221 for a family of four in 2021, according to the Kaiser Family Foundation. Family members of employees who have access to affordable coverage are not eligible for subsidies on the ACA marketplaces, and many family members pay high costs to have company coverage. Companies with fewer than 50 full-time employees are not required to offer coverage.
“There’s been a common trend cutting back on family and spouse coverage,” and more companies are only offering employee-only coverage as insurance has gotten more expensive, Hooper said.
Take Command Health administers types of health reimbursement arrangements (HRAs) that employers can use to reimburse employees for medical care expenses and Affordable Care Act plans. The IRS proposal should be clarified to ensure that employees can use those types of HRA contributions to help them purchase coverage on the marketplaces along with their families, Hooper said.
For employees with family members, it makes more sense for an employee to get a plan with their family in the exchange, Hooper said. Otherwise, “They have to buy two different plans,” he said. Having different plans would entail having to navigate different plan rules with different provider networks and out-of-pocket costs.
Not All Brokers See Savings
But not all health insurance brokers think the rule, if finalized, would have a big impact on businesses. “I don’t think it’s going to affect the employer,” Rita Rolf, director of employee benefits and life at TexCap Insurance Services in Dallas, said in an interview.
Few of the approximately 100 small businesses Rolf works with pay for dependent coverage, she said. “It’s mainly the employee affect” that will take place as families get subsidized marketplace coverage, she said.
Many family members may not like the exchange choices, Angela Theesfeld, vice president of Davidson Camp Insurance Services LLC in San Antonio, said in an interview. Davidson works with about 400 companies.
On many exchanges, “You really only have HMOs available to you, or you have smaller networks,” she said, referring to health maintenance organizations, which have carefully controlled provider networks. “If they are someone who really needs a PPO or a larger network or that better benefit that their employer’s giving, that’s where they’re coming up with whatever amount it is to try to make that work,” she said, referring to preferred provider organizations, which have broader networks.
Employers who offer family coverage would likely continue to offer it, Mitch Relfe, federal government relations manager for the National Federation of Independent Business, said in an interview. “I think the issue would be will they offer less generous dependent coverage. I think the answer for the most part is probably no. We’ll have to see how things play out.”
There has been little action by the government to make employer-sponsored coverage more affordable, which is “a huge problem,” Relfe said. “We’re just continuing to subsidize folks in the marketplace side, but we’re doing little to help employers with cost.”
Making health-care costs for affordable will improve the level of benefits that employers can provide, Relfe said.