On April 5, President Biden held an event at the White House celebrating coverage gains since the enactment of the Affordable Care Act (ACA). Joined by Vice President Harris and former President Obama, President Biden highlighted actions that the Administration has taken to advance access to and affordability of comprehensive health care coverage. One of the actions touted at the event was a proposed fix to the “family glitch,” announced earlier that day and described in more detail below.
In addition, the President signed an executive order (EO) on Continuing to Strengthen Americans’ Access to Affordable, Quality Health Coverage, directing federal agencies to identify ways to “expand the availability of affordable health coverage, to improve the quality of coverage, to strengthen benefits, and to help more Americans enroll in quality health coverage” across ACA Marketplaces, Medicare, Medicaid and other programs. This latest order builds upon the President’s January 2021 EO, Strengthening Medicaid and the Affordable Care Act, which ordered a federal governmentwide review of policies or practices that impact access to coverage through Medicaid and the ACA.
Overview
The Department of the Treasury (Treasury) notice of proposed rulemaking on the “family glitch” would extend eligibility for the ACA’s premium tax credit to more employees’ families when their share of their employer-sponsored premium is unaffordable. This would reverse Treasury’s prior determination that the employee’s premium alone, not the family’s, dictates whether the entire family is barred from financial assistance. The current regulation makes spouses and children ineligible for a premium tax credit if an employee’s access to employer-sponsored coverage is deemed “affordable” based solely on the cost of individual coverage rather than the cost of a family plan.1 This is often called the “family glitch.” Consistent with the treatment of employee-only coverage today, the proposed rule also allows families to become eligible for a premium tax credit if the family coverage fails to meet the minimum value standard. Comments on the proposed rule are due by June 6, and a public hearing will be held on June 27. If finalized, the provision would take effect on January 1, 2023.
Fixing the Family Glitch
Under the ACA, an individual with an affordable offer of minimum-value employer-sponsored coverage is ineligible for a premium tax credit to reduce the cost of Marketplace coverage. (In 2022, the ACA’s formula considers employer-sponsored coverage affordable when the employee’s premium costs less than 9.61 percent of the household’s income.) Under a 2013 rule, the affordability determination for employee-only coverage also dictates whether coverage is affordable for a spouse filing a joint return and any dependents claimed on the employee’s return. And so a finding that coverage is affordable for the employee not only disqualifies the employee from receiving a premium tax credit but also disqualifies any member of the employee’s family who is offered coverage, regardless of whether the employer-sponsored coverage is actually affordable to cover the spouse and/or children.
The proposed rule would change this so that, beginning in 2023, the affordability of family coverage is a separate determination, meaning that it would also have to meet the statutory affordability standard. If it didn’t, family members could be eligible for a premium tax credit, even if the employee is blocked by their affordable offer for self-only coverage. The proposed rule does not estimate the number of individuals affected by the rulemaking; but according to the White House, an estimated 200,000 uninsured people would gain coverage and nearly 1 million would have lower costs. Independent analyses cited by the rule indicate that as many as 5.1 million people fall into the family glitch, most of whom are children, but that many of these people are already enrolled in coverage, albeit coverage that is unaffordable.
According to the proposed rule, the Treasury and Internal Revenue Service (IRS) have “tentatively determined” that their previous reading of the statute that bars family members from the premium tax credit when employee-sponsored coverage was affordable “is not required” and that it “unduly weakens the ACA.” Instead, it adopts an alternative reading that it says is more faithful to the goals of the ACA.
In addition to considering the affordability of a premium, the statute requires an employer’s offer to be of minimum value, meaning that the plan’s share of the total allowed cost of benefits is at least 60 percent. The minimum value standard has to date been applied only to the employee’s coverage offer, but this would now be extended to apply to the family’s offer, so that an offer that fails to meet minimum value, even if affordable, would open the door to premium tax credit eligibility. The coverage must also provide “substantial coverage” of inpatient hospital services and physician services.
Economic Impacts and Implementation
Without the option of a premium tax credit, some family members are enrolled in coverage today that under the proposed rule would be considered unaffordable. The proposal’s economic analysis indicates that some of those family members will shift to the Marketplace, which could lead to an overall reduction in employer spending on health coverage, but that the number of people taking up the new option could be modest.
The proposed rule does not change employers’ liability for a “shared responsibility” payment if they fail to offer affordable and minimum value health coverage to their employees. Currently, employers owe a payment to the IRS when they don’t offer coverage meeting the minimum value standard to at least 95 percent of employees, or when their employee-only coverage offer is unaffordable. The payment is triggered when an employee receives a premium tax credit from the Marketplace, but not when a member of the employee’s family receives a premium tax credit. The proposed rule doesn’t create a new employer obligation to make family coverage affordable or minimum value—it just gives employees’ family members a more affordable coverage option if it is not.
Further, the proposed rule notes that Treasury and IRS have been engaged with the federal Marketplace to ensure it could be ready to implement the provision in 2023 and would support state-based Marketplaces in their efforts to implement the rule.
1 26 CFR 1.36B-2(c)(3).