The Biden administration is pressing ahead with its efforts to improve the affordability of health coverage, moving forward with a proposal to revisit a regulatory stumbling block long criticized by health-care advocates.
The “family glitch,” part of a 2013 rule implementing the Affordable Care Act, makes it harder for many families to qualify for the premium subsidies that help make Obamacare coverage affordable. The Kaiser Family Foundation estimated in a 2021 report that “more than 5.1 million people fall in the family glitch.”
The 2013 regulation specifies that if individuals are eligible for affordable employer coverage that meets ACA qualifications, neither they nor their family members can get premium tax credit subsidies. The affordability standard is based on what employees have to pay for self-only coverage, 9.61% of pay in 2022, rather than on whether such family coverage is affordable.
1. What did the IRS do?
The Internal Revenue Service on April 7 published in the Federal Register a proposed rule (RIN 1545-BQ16) that would allow some families of people with employer-sponsored coverage to get premium tax credit subsidies through the Obamacare marketplaces.
Under the proposal, family members who have to pay more than 10% of income for coverage would be able to get financial help.
The proposal was released the same day President
The vast majority of those who fall in the family glitch, 4.4 million people (85%), are currently enrolled through employer-sponsored health insurance, according to the Kaiser Family Foundation. These families are likely spending far more for coverage than individuals with similar incomes eligible for financial assistance on the ACA marketplaces and could spend less on premiums if they could enroll in marketplace plans and qualify for subsidies.
In 2020, the Congressional Budget Office estimated the cost of “expanding affordability for working families to fix the family glitch” at over $45 billion from 2020 to 2030.
The IRS is proposing that the new interpretation of affordability would take effect beginning in 2023 so that people could get financial assistance in the next open enrollment period.
Comments are due on the proposed rule by June 6, and a public hearing is scheduled for June 27.
3. What new options would workers get?
“Nearly 1 million Americans would see their coverage become more affordable,” according to a White House fact sheet. Many families would be able to save hundreds of dollars a month in lower premiums, the fact sheet said.
The White House also estimated a relatively low 200,000 uninsured would gain coverage under the proposal.
However, if family members who are currently covered by employer plans leave those plans to get exchange coverage, that would mean they have different policies than household members who stick with the employer plans. That, in turn, likely means different out-of-pocket rules and networks, making it more complicated to navigate the health-care system.
2. Do employers face new penalties as a result?
No. Under the Affordable Care Act, employers with at least 50 full-time employees face large penalties for not offering “minimum essential” coverage that is affordable for their employees. However, they don’t face penalties for not offering coverage that is affordable to families, and they wouldn’t be liable under the IRS proposed rule since the employer mandate penalty doesn’t extend to spouses and dependents.
4. What do employers think of the change?
One employer group that weighed in on the issue is supportive.
“The ERISA Industry Committee (ERIC) applauds the Biden Administration for addressing the ‘family glitch,’” Christina Ciconte, the group’s public policy manager, said in an April 5 email. ERIC represents large employers that provide employee benefits, including health care.
“It is ERIC’s understanding that today’s announcement by the Administration affects only health insurance purchased through the Exchange and not employer-sponsored group health plan coverage,” Ciconte said. “We appreciate that the Administration’s Executive Order and Proposed Rule do not add costs to employees and their beneficiaries.”
Employers previously had expressed concerns over a provision in Biden’s failed Build Back Better legislation that also would have narrowed the family glitch. They feared that measure would draw younger, healthier people in the Obamacare markets while leaving employers with individuals who are older and sicker.
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