Fixing the Family Glitch

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Ambiguous language in the Affordable Care Act could keep affordable health care out of reach of millions.

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The Patient Protection and Affordable Care Act (ACA) contains a glitch that may be preventing as many as six million Americans from obtaining affordable health care coverage.

Due to the glitch, a household is not eligible for the ACA Marketplace subsidies because one member of the household is also able to receive “affordable” health insurance from that person’s employer. The ACA Marketplace was established in order to ensure that those without affordable employer-sponsored insurance could have access to health care by both marketing ACA-compliant plans and providing premium tax credits or cost-sharing reductions to eligible households. The solution to the family glitch is relatively straightforward, but it could also cost the federal government between almost $4 billion and $9 billion.

Under the ACA, employers with at least 50 full-time-equivalent employees must offer their employees affordable health insurance coverage or else pay a penalty. In 2019, the government has defined an “affordable” plan as one in which employees need only contribute 9.86 percent or less of their total income toward the plan.

But the ACA contains one important caveat: The 9.86 percent affordability determination is made based only on the insurance plan of the individual employee—not the total cost of insuring that employee’s household. Although the ACA requires employers to offer plans that would cover the dependent children of their employees, it does not require the employer to contribute to those plans.

Under the current state of affairs, employees may have to pay far more than 9.86 percent of their income to include their families on their employer’s plan. Low-income families are affected the most, as they are already spending a larger percentage of their income on health care if they do not qualify for subsidies and because low-income workers are less likely to have jobs with comprehensive health care benefits.

Coupled with the fact that the ACA prohibits employer-insured households from receiving Marketplace subsidies (because the employed family member has access to “affordable” coverage), the situation leaves many families with a difficult choice—either pay for unaffordable health coverage or go without it.

The glitch itself stems from language in the ACA. One provision states that affordable employer plans are ones where the employee’s “required contribution” is less than or equal to 9.86 percent of the employee’s income. Another provision defines the employee’s “required contribution” in this context to mean the amount that is required for individual coverage. Putting the two provisions together, the law does not contemplate the cost of family coverage in calculating an employee’s required contribution.

Even though the word “glitch” may suggest that the flaw in the ACA’s coverage is accidental, it was actually deliberate. When the Internal Revenue Service (IRS) proposed regulations in 2011 that would make affordability based only on the cost of the employee’s individual health plan, many commenters, including the AFL-CIO, identified the family glitch as a threat to affordable coverage. After consultation with the U.S. Department of the Treasury and the Government Accountability Office, however, the IRS nevertheless forged ahead and issued a final rule that left the definition of an affordable “required contribution” unchanged.

Some commentators have suggested that the costs to the federal government in providing subsidies to family members drove the decision to retain the family glitch. If the level of employees’ contributions were based on the cost of family coverage, many more employees would have had their premiums exceed the maximum contribution percentage, leaving more households eligible for government subsidies for plans on the Marketplace. This would have imposed substantial additional costs on the federal government.

In 2014, then-U.S. Senator Al Franken (D-Minn.) introduced a bill that would amend the ACA’s language so that the cost of insuring an employee’s family would become the benchmark for the affordability calculation. A study by the RAND Corporation showed that Senator Franken’s proposal would have reduced the number of uninsured Americans by about 1.5 million at a cost of almost $9 billion to the federal government. As an alternative, the RAND study also found that a “dependents only” measure—in which only the employee’s dependents would be eligible for Marketplace subsidies—would cost $4 billion to the federal government but would only reduce the uninsured population by around 700,000.

Senator Franken’s bill died in committee. The Democratic Party, though, appears to believe that the additional cost of his proposal would be worth it. In March 2019, the House Committee on Energy and Commerce passed several bills aimed at strengthening the ACA. In a summary of the bills, the House Committee on Energy and Commerce stated its plan to ensure “that families who don’t have an offer of affordable coverage from an employer can still qualify for subsidies in the Marketplace.”

Legislation aside, some suggest that the IRS could interpret the ACA to allow for the affordability and employee contribution calculation to account for the cost of family coverage. But no one expects the IRS to change its interpretation of the ACA anytime soon.

It is clear that the family glitch is preventing many Americans from obtaining affordable health care coverage, contrary to the underlying purposes of the ACA. Some of the current 2020 Democratic presidential candidates, notably Senators Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), have embraced a “Medicare for All” plan that eliminates all private insurance and therefore the family glitch along with it. Others support a public option, which may provide families with the opportunity to forgo unaffordable employer-sponsored insurance. With health care among the top issues for the 2020 election cycle, perhaps voters will choose leaders who will fix the family glitch.