15 March 2022 |

The Family Glitch

By workweek

5.1M Americans are caught in a “family glitch.” What the heck does that mean?

The Deets 

Under the Affordable Care Act (ACA), low- and middle-income Americans are eligible for premium subsidies in the ACA insurance Marketplace. Individuals and families are ineligible for such subsidies if they have another form of coverage, such as employer-sponsored insurance, that’s affordable and provides minimal value:

  • Affordable = the cost of premiums for the individual employer-sponsored insurance plan is less than 9.6% of family income.
  • Minimal Value = more than 60% of health expenses are covered by employer-sponsored insurance.

Let’s Explain the Family Glitch  

Say Jane has a spouse and two kids. Jane’s employer offers insurance with an annual $6,000 family premium (the individual annual premium is $1,300).

Together, the family makes $50,000 per year. Her annual premium of $6,000 is more than 9.6% of her family income. So, do Jane and her family qualify for premium subsidies? No.

They do not qualify for premium subsidies because the insurance is technically “affordable,” according to the above definition!

  • The individual coverage premium—$1,300—is less than 9.6% of the family income! 

That’s what’s weird about this subsidy qualification rule: determining who qualifies for subsidies depends on the affordability of the annual premium for individual coverage, no matter if you have a family plan.

The Solution

The Biden administration proposed an updated rule to fix the family glitch: an “affordable” family insurance plan means the annual premium for a family plan (not individual plan, as it’s been) must be less than 9.6% of family income.

My Thoughts

An estimated 710K of the 5.1M Americans affected by the glitch will enroll in the ACA marketplace if the proposed rule goes through. Since those mainly affected by the family glitch are young and relatively healthy, the Marketplace insurance risk pool would be healthier and premiums should decrease (as discussed last week!).

However, things may get messy. For example, you can imagine cases where one person maintains individual employer-sponsored insurance while the rest of the family enrolls in the ACA Marketplace with premium subsidies. In that case, families would deal with two premiums, two deductibles and different in-network providers. It can get even messier if both spouses maintain their employer-sponsored insurance and only the children enroll in the ACA Marketplace. That’s just a lot…

Anyway, if the proposed rule goes through, it’ll cost around $45B over the decade. This amounts to ~3% of what has been spent under the ACA since its inception.