The Affordable Care Act and The Family Glitch


The Affordable Care Act became law more than a decade ago. Its purpose was, and is, to make health insurance more affordable to more people. One way was to enable households whose earnings are between 100% and 400% of the Federal Poverty Level (FPL) to claim premium tax credits in order to lower their insurance premium costs. The other way was to expand Medicaid coverage to adults whose earnings fall below 138% of the FPL.

The Act is not, and was never, perfect. Recent government statistics, however, do show that enrollments have increased during the special enrollment period supported by the American Rescue Plan. This support will continue through next year enabling some additional subsidy eligibility rules. Unfortunately, some subsidy eligibility rules did not change, neither did Federal interpretation of the rules change. That has resulted in some adults and families losing out on subsidized marketplace coverage. One such obstacle to receiving premium subsidy, is known as ‘the Family Glitch.’

What is the Family Glitch?

Basically, the ‘glitch’ excludes the income qualification in certain cases. An article in Health Affairs, written back in 2014, states the following: Eligibility is not solely determined by income. It is also subject to whether a family has access to affordable employer-sponsored insurance.

This has resulted in a problem, and that problem is how the word ‘affordable’ is defined. The definition impacts both an individual employee and the employee’s family. The definition of affordable is based on the cost of coverage for that employee and, therefore, does not take into account what are often significantly higher costs of coverage for a family plan.

Here is an example to clarify the ‘glitch.’ An employer offers group health coverage to the full-time employees. The plan provides minimum value. The monthly premium is, say, $500, and the employer subsidizes this by paying $250 of each employee’s premium. Family members may enroll in the plan, but their premium is not subsidized. The employee may want to be excluded from the company scheme and enroll in a subsidized plan in the individual market. Here is the problem; in order to waive employer coverage and qualify for the chosen subsidized individual market plan, the employer’s plan must be proven to be ‘unaffordable.’ The definition of unaffordable in 2021 is this: the employer’s plan must equal, or exceed, 9.83% of household income. Household income includes everyone in the household who is required to file a tax return.

To take a simple example, if household income is, say, $42,000 ($3,500 per month) then 9.83% of that is $344,05. The employer-provided health care plan only costs the employee $250. If the household includes a spouse and adult child who pay taxes, and another child of school age, the total monthly premium for the employer scheme would be $1,750 or, approximately half of their monthly income. This may be higher than a health care plan purchased in the individual market.

Using this scenario, the employee is blocked from receiving the premium tax credit because $250 does not exceed the 9.83% limit. That is not the end of the problem, hence the term family glitch, every other member of the household is also blocked from receiving the premium tax credit.

No federal administration can easily solve this glitch. The Affordable Care Act is written in such a way that any change would require another Act of Congress.  Congress has not chosen to act in previous years and it is unlikely, in the foreseeable future, that it will act.

What of the Future?

Under the American Rescue Plan Act the premium tax credits have increased considerably in the individual market, and almost everyone benefits, except those with an ‘affordable’ company scheme. It still has to be seen if smaller employers, or those still suffering from the after-effects of the  COVID-19 lockdown will look again at their group health coverage options.

If you offer both individual plans and group plans, you may find it advantageous to contact your clients and discuss the options for ending the group plan, enabling employees and their families to benefit from enhanced individual plans. The employer contributions thus saved, could go towards offering dental, vision or other benefits.

If you would like to discuss options, please feel free to contact us by clicking on this link.

Healthcare Solutions Team is a wholly owned subsidiary of the National General Insurance Group and the Allstate Insurance Company.