BOOM: HHS officially resolves the #FamilyGlitch for up to 5.1 million Americans!

Family Glitch

This is partly a repost of mine from April 2021, but with some important updates:

Of all the problems the ACA has encountered over the 12 years since it was first signed into law by President Obama, one of the 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 (usually around 9.8%), 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 set 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. As Amy Lotven of Inside Health Policy reported in April 2021...

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.

The only downside to making this change via regulation vs. legislation is that, of course, a future GOP Administration could simply reverse that regulatory rule again. Even so, this was fantastic news.

Sure enough, one year later:

Today, the Biden-Harris Administration is proposing a rule to strengthen the ACA by fixing the “family glitch,” which would save hundreds of thousands of families hundreds of dollars a month.

Under the ACA, people who do not have access to “affordable” health insurance through their jobs may qualify for a premium tax credit to purchase affordable, high-quality coverage on the ACA’s health insurance marketplaces. Current regulations define employer-based health insurance as “affordable” if the coverage solely for the employee, and not for family members, is affordable, making family members ineligible for a premium tax credit even though they need it to afford high-quality coverage through the Marketplace. For family members of an employee offered health coverage through an employer, the cost of that family coverage can sometimes be very expensive and make health insurance out of reach. The “family glitch” affects about 5 million people and has made it impossible for many families to use the premium tax credit to purchase an affordable, high-quality Marketplace plan.

The Treasury Department and the Internal Revenue Service are proposing to eliminate the “family glitch.” Should today’s proposed rule be finalized, family members of workers who are offered affordable self-only coverage but unaffordable family coverage may qualify for premium tax credits to buy ACA coverage. Should the proposed change be made, it’s estimated that 200,000 uninsured people would gain coverage, and nearly 1 million Americans would see their coverage become more affordable. Many families would be able to save hundreds of dollars a month thanks to lower premiums. This proposed rule would amount to the most significant administrative action to improve implementation of the ACA since its enactment.

And finally, this morning, it became official:

Statement by HHS Secretary Xavier Becerra on Administration Action to Resolve “Family Glitch” and Lower Health Care Costs

  • Final rule issued today is the most significant administrative action to implement the Affordable Care Act since the law was enacted

Today, U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra issued the following statement on the Biden-Harris Administration's final rule to strengthen implementation of the Affordable Care Act by fixing the “family glitch,” a step that will help about 1 million Americans either gain coverage or see their coverage become more affordable.

“Protecting and strengthening implementation of the Affordable Care Act is key to increasing access to quality, affordable health care. Today’s action resolves a flaw in prior ACA regulations to bring more affordable coverage to about one million Americans. Our goal is simple: leave no one behind and give everyone the peace of mind that comes with health insurance.

“Under President Biden’s leadership, our nation’s uninsured rate is at an all-time low and Affordable Care Act enrollment is at an all-time high. This is not by accident. We are meeting people where they are to tell them about their health care options through unprecedented outreach efforts. And through landmark legislation like the American Rescue Plan and the Inflation Reduction Act, we have offered the lowest ACA premiums rates in history. Our work to expand coverage and lower health care costs for American families never stops.

“Whether you’re part of a family previously affected by this glitch, or an individual buying insurance on the marketplace, the Biden-Harris Administration is committed to ensuring you have the access to health care you deserve.”

Here's the actual rule itself (which is 86 pages long).

It's important to understand that while around 5.1 million Americans could potentially benefit from fixing the Family Glitch, that doesn't mean all of them would, or even that all of those who could would actually take advantage of it. After all, according to the Kaiser Family Foundation, over 10 million uninsured Americans are already eligible for subsidized ACA coverage right now who haven't signed up, and another ~7 million are eligible for Medicaid/CHIP but haven't done so for various reasons.

In the case of the Family Glitch population, a lot of those who are currently shut out by it do have healthcare coverage via their employer; they're just paying through the nose for it. Many of those folks will hopefully move to an ACA exchange plan to save thousands of dollars per year, but not all of them will.

In some cases their employer coverage may have better provider networks; in other cases, the savings from making the move may only be nominal and thus not seen as being worth the effort of making the move. With all this in mind, the White House estimate of perhaps 1 million transitioning over and another ~200K uninsured gaining coverage may not be as conservative an estimate as it looks at first.

On the other hand, the Biden Admin's ~1.2M estimate was published back in April, at a point when it was looking very unlikely that the American Rescue Plan's enhanced/expanded financial subsidies would be extended beyond the end of 2022. I don't know whether they were assuming the beefed-up subsidies would or wouldn't be in place when they came up with that estimate. If they figured they wouldn't be, then the 1.2M figure may be underestimating the number of people who benefit.

We'll find out soon...