The Biden administration and Congress can make health insurance more affordable for millions of families by eliminating the so-called family glitch, which prohibits family members from enrolling in marketplace plans with lower premiums and cost sharing because one member of the family has an offer of “affordable” employer coverage. The family glitch deprives millions of people of access to affordable coverage.
Here’s how it works: under the Affordable Care Act (ACA), individuals receive subsidies to reduce premium costs for health plans purchased through the marketplace. In addition, the lowest-income enrollees are eligible for cost-sharing reductions that lower deductibles and copayments. But these benefits are not available to individuals who are eligible for affordable employer coverage. In 2021, coverage was defined as affordable if the premium was less than 9.83 percent of family income. The American Rescue Plan did not lower this threshold.
For families, affordability — for everyone, including eligible spouses and children — is determined based on the employee’s coverage. Even if the employer’s contribution is for the employee only, those costs are used in calculating affordability for the entire family. Family members are barred from getting subsidies in the marketplace, even if the cost of family coverage offered by the employer is above 9.83 percent of family income.
Family Glitch Locks Millions of Low- and Middle-Income Families Out of Subsidies
Because of the family glitch, millions of low- and middle-income families face unnecessarily high insurance costs. It is estimated that 5.1 million to 6 million people are ineligible for subsidies because of the glitch. More than a quarter of low-income nonelderly people (below 200% of the federal poverty level, or up to $34,480 for a family of two) and almost 10 percent of middle-income individuals (200%–399% of poverty, or $34,481 to $68,959 for a family of two) spend more than 9.83 percent of their after-tax income on employment-based premiums. Low-income families are more likely to be affected because costs as a share of income are significantly greater than for high-income families.
Consider a Montana couple, Steve and Julie, earning $34,000 combined annually (i.e., 197% of the federal poverty level). Montana had the second-highest annual growth in employer premiums for family coverage between 2010 and 2019; average deductibles are more than 5 percent of median income. Both Steve and Julie are 55 and working, but Julie does not have an offer of coverage through her employer. Steve works for a small employer that pays 100 percent of employees’ premiums. But while Steve’s employer offers coverage for spouses, the employer does not make any contribution to family coverage. Because Julie is eligible as a dependent on her husband’s employer health plan, she is not eligible for a premium tax credit on the ACA marketplace. Julie’s monthly premium for the employer coverage would be $805; her monthly premium in a subsidized marketplace plan would be $54, a difference of more than $9,000 annually.