On April 5, the Biden Administration proposed a regulation that would eliminate the family glitch coverage gap in the Affordable Care Act (ACA) that impacts 5.1 million individuals.
The regulation aims to expand low to no cost Marketplace plan eligibility to those with unaffordable coverage due to dependent status. Announced during the 12th-anniversary celebration of the ACA’s enactment, the proposed changes are expected to take effect in January 2023.
The Family Glitch Results in Unaffordable Coverage for Employees with Dependents
Under the ACA, individuals can qualify for Marketplace subsidies if their employer-sponsored insurance premium costs about 10% of the individual’s household income; however, affordability calculations do not consider the increase in premiums that dependents cause. Only the coverage of the employee, and not the dependents, is compared to the 10% cutover for Marketplace subsidies. This gap in affordable coverage assessments is known as the family glitch.
As a result, many families are paying for employee-sponsored insurance far beyond what other families with similar household incomes are paying on the Marketplace. A Health Affairs study reports that families impacted by the glitch pay an average of 12% of their yearly income compared to the 10%.
Additionally, a section of those impacted by the family glitch cannot afford employee coverage and do not qualify for Marketplace subsidies, leaving them uninsured. Of the 5.1 million estimated individuals impacted by the glitch, 54% are children under 18, according to a brief released by the Kaiser Family Foundation.
Under Biden’s proposal, premium costs for all family members will be utilized to determine affordability and Marketplace eligibility.
“Out of the estimated 5.1 million people caught in the family glitch, the White House estimates nearly 1 million would switch from employer to ACA plans to get lower premiums and 200,000 uninsured people would newly gain insurance,” the Kaiser Family Foundation’s Larry Leavitt explains.
The rule features a 90-day comment period with a public hearing being held on June 27.
Reliance on Employers to Provide Affordable Coverage for Dependents and Potential Coverage Lapses Limit Rule Application
While affordability calculations under Biden’s proposal will change to consider dependents, employers are not required to adjust premiums or provide affordable coverage for family members.
Most employers do not cover the same portion of health insurance costs for dependents as they do for employees; an inconsistency that will cause some dependents to be newly eligible for subsidized Marketplace coverage while the employee remains on traditional-group insurance, a separation that may cause confusion. Some households in this situation will choose to remain enrolled in their employer-sponsored insurance plan due to provider and benefits familiarity.
Despite the large number of individuals impacted by the family glitch, the IRS and policy experts expect a modest uptake of Marketplace coverage. Some additional barriers that will impact the effect of this regulation include:
- Coverage lapses due during the transition to ACA coverage.
- A lack of literature and resources available during this transition.
- The splitting of households between the Marketplace and employer-sponsored coverage.
- The loss of familiar benefits and providers due to changing plans.
- Marketplace subsidy determination issues.
Opponents of the rule argue that the Biden administration lacks the statutory authority to rectify the family glitch through rulemaking and that a fix will require legislation.
Executive Order Calls for Continued Investment in the ACA from Federal Agencies
Biden expressed his commitment to improving the ACA by expanding on a previous executive order signed in January 2021. A briefing released by the White House encourages Medicaid and ACA agencies to continue their review of agency actions.
The April 5 executive order elaborates on this sentiment by directing federal agencies to keep doing everything in their power to expand access to affordable coverage.
In a new executive order, Biden announced that agency responsibilities will include a review of policies or practices that aim to:
- Promote an individual’s ability to gain, keep, and understand their coverage.
- Improve benefits and healthcare access.
- Improve coverage comprehension and safeguard enrollees.
- Expand eligibility and lower coverage costs.
- Improve communication between systems and stakeholders.
- Reduce the impact of medical debt.
Repairing the Family Glitch Would See Further Increases in ACA Enrollment Rates
The Biden administration has been consistent in their support of the ACA, and elimination of the family glitch would continue the trend of expanding affordable coverage via the Marketplace. Repairing the family glitch aligns with ACA expansion goals but won’t compensate for the loss of American Rescue Plan Act (ARPA) subsidies that could occur at the end of 2022.
2021 saw the highest Marketplace enrollment rates in history, reaching 14.5 million individuals through January 15, 2022. Experts expect to see another wave of Marketplace enrollments following the Public Health Emergency as individuals transfer from Medicaid to the ACA. The ACA is positioned to continue to thrive due to supportive legislation and the influx of new plan offerings from partnered health plans.
Ensure that your organization is well-positioned for a favorable entry into the Marketplace by downloading Softheon’s Whitepaper.
Meet the Author
Josh Schultz
Josh Schultz is a Senior Policy Analyst at Softheon, where he advises the company on health policy issues affecting businesses and government health agencies. Prior to Softheon, Josh worked for a non-profit agency assisting Medicare beneficiaries, a technology company, and consulting firms.