Good News: Biden Admin may fix the #FamilyGlitch via regulation after all!

Family Glitch

Of all the problems the ACA has encountered over the 11 years since it was first signed into law by President Obama, one of the stupidest and most irritating ones had nothing to do with Republican sabotage. The call on this one was made by the IRS (then under the Obama Administration), based on their interpretation of a few bits of language within the legislative text itself back in 2013: The Family Glitch.

As explained by the brilliant Louise Norris:

We still get calls on a regular basis from people who are shopping for individual insurance because adding dependents to their employer plan is prohibitively expensive. We estimate that roughly 20 percent of the people who contact us are in this situation.

Unfortunately, due to a “glitch” in the ACA, they are not eligible for premium subsidies in the exchange if the amount the employee has to pay for employee-only coverage on the group plan is deemed “affordable” – defined as less than 9.78 percent of household income in 2020.

It doesn’t matter how much the employee would have to pay to purchase family coverage. The family members are not eligible for exchange subsidies if the employee could get employer-sponsored coverage just for him or herself, for less than 9.78 percent of the household’s income in 2020. As long as the employee’s portion of the premium is affordable, the cost for the family could end up being 25 percent — or more — of their household income and they’d still have no access to premium subsidies. They can either pay full price in the individual market, or pay whatever the employer requires to cover the family on the employer’s plan, despite both options being financially unrealistic.

The exact percentage of household income jumps around a little each year (for 2021 I believe it's 9.83%), but here's the problem:

  • Let's say you have healthcare coverage for yourself only through your employer, and you only have to pay, say, 5% of your annual household income for your premiums
  • However, you're married with two kids, and adding each of them would tack on another 5% in premiums. Covering all four of you would cost 20% of your annual household income, ouch.
  • Because your individual premiums come in at less than 9.78% (or 9.83%, or whatever) of your income, the rest of your family doesn't qualify for ACA subsidies even though the premiums for the family as a whole costs far more than the maximum amount you'd otherwise have to pay for an ACA exchange plan.

This issue – known as the “family glitch” – was clarified by the IRS in a final rule published in early 2013, based on the language of the ACA. There are two main sections of the law that are involved: 36B deals with subsidies, and 5000A deals with the individual mandate and penalty.

In 36B, the law states that an employer plan is affordable as long as the employee’s required contribution doesn’t exceed 9.5 percent of income (but that’s indexed annually; it’s 9.56 percent in 2018 and 9.86 percent in 2019. And to clarify “required contribution” we’re referred to the definition in 5000A, which states that it’s the amount that must be paid for self-only coverage.

When the IRS issued their final rule, the agency noted that some commenters had suggested that the earlier proposed regulation be modified to define the employee’s contribution as the total amount the employee must pay for family coverage. But ultimately the final rule was issued without changing the definition of the employee’s required contribution.

Health Affairs explains that this was not an accident or oversight — it was carefully considered and the final regulation was delayed while the Government Accountability Office and the IRS analyzed the impact of the decision. There were concerns that employers would increase the contributions required to enroll family members, which would push more people off employer plans and into the exchanges, driving up the total cost of subsidies. Ultimately, those concerns prevailed and the “family glitch” was born.

Oof. Yet another case of too many Obama-era Democratics being so dead seat on the ACA's CBO score not going over $900 billion that they cut millions of potential enrollees out of the loop just to prevent more people from dropping employer coverage and moving to the very ACA plans which the law was trying to promote. This is a core philosophical issue: In my view, one of the goals of the ACA should be moving people off of employer-sponsored insurance where it's feasible & practical to do so!

Norris estimates that between 2 - 6 million Americans are impacted by the #FamilyGlitch each year, and that they tend ot be the families of lower-wage workers. There's been legislation introduced before to fix the glitch (most notably by then-Senator Al Franken way back in 2014), but to no avail. Hillary Clinton wanted to eliminate it when she ran for President in 2016, but we know what happened there.

Enter the Biden Administration. Via Amy Lotven of Inside Health Policy:

Sources say the Biden administration is looking at the regulatory process to fix the so-called “family glitch” that has blocked millions of dependents from accessing Affordable Care Act credits, a move pushed by beneficiary advocates, hospitals and other stakeholders.

Resolving the issue via rulemaking would bake in additional enrollment and reduce the need for payment offsets if the fix were done legislatively.

...On Jan. 28, the White House issued an executive order directing federal agencies to review regulations with an eye toward reducing barriers for coverage and improving affordability, including "policies or practices that may reduce the affordability of coverage or financial assistance for coverage, including for dependents."

And on a phone call with reporters, a White House official signaled that fixing the glitch could be on the list. The policy is under the purview of Treasury, which did not respond to a query by press time.

...advocates also proposed an alternative solution that would still use the self-only coverage for the employee but allow the family to access the ACA credits. But in January 2013, the agency finalized the rule as written.

The Biden administration is now looking at the alternative approach, says a source familiar with the discussions.

As the article notes, a fix for the Family Glitch was included in the big ACA 2.0 bill which passed the House last summer (H.R. 1425), but of course went nowhere in the GOP-controlled Senate at the time.

One thing I was a bit surprised by recently is that that none of the eighteen different "ACA 2.0 mini-bills" which were debated at a House Energy & Commerce Committee hearing a couple of weeks back included a fix for the Family Glitch, although several more expansive Public Option bills have.

However, if Lotven's sources are correct, there may be a good reason for this:

According to the Congressional Budget Office, the provision would cost about $45 billion over 10 years.

In 2016, the Urban Institute looked at both policies as well. Urban found that basing the affordability test on the cost of a family plan would result in about 3.6 million people with marketplace coverage, at a cost of about $6.5 billion a year. In the alternative version about 1.6 million more people would have ACA coverage at a cost of about $3.7 billion a year.

But sources note that fixing the problem via rulemaking would bake the spending into the underlying budget score, and provide more wiggle room for Congress to enact other ACA coverage expansions and health care priorities.

In other words, fixing the Family Glitch via IRS regulatory changes is something which a) can apparently be done by the Biden Administration itself without Congress' involvement; b) wouldn't require coming up with an extra $45 billion in pay-fors; and c) as a bonus, would ironically provide a higher baseline for them to make further enhancements, due to how CBO scores work (see the CSR lawsuit for further CBO score magic).

The only downside (assuming they can fix the family glitch via regulatory changes alone) is that, of course, a future GOP Administration could simply reverse that regulatory rule again, but there's nothing stopping them from making the changes by regulation now and then codifying it at some point in the future (assuming Dems still retain control of the House, Senate and White House at that point, of course).