Health Insurance News Worth Celebrating!

October 2022 marks the end of one of the biggest obstacles to affordable health insurance premiums for an estimated 5.1 million people, according to research by the Commonwealth Fund. The obstacle is commonly referred to as “The Family Glitch” which has disqualified family members from obtaining subsidies (premium tax credits) for ACA Marketplace coverage if they had access to an employer sponsored health insurance plan, without consideration of how expensive the coverage was. The Affordable Care Act does include provisions that require employer sponsored plans to meet affordability standards, but the affordability test only applied employee-only coverage offered to the employee. In short, the affordability of the family coverage was irrelevant in determining qualification of family members for subsidized Marketplace coverage, effectively freezing out family members from subsidies because “affordability” was based only on the affordability of the employee-only coverage.

Throughout the past 12 years, since ACA rules were implemented, many families have been stuck paying extremely high premiums for the spouse and/or children of employees whose employer offers health insurance, but do not help cover the cost of that insurance for the employee’s dependents. The only other option for family members when the employer covered they were offered was not affordable, was equally, or, sometimes even more expensive coverage from the Marketplace since they would not be eligible for a Marketplace premium subsidy. This month, the Internal Revenue Service issued final regulations concerning the affordability of family coverage. Specifically, the rule states that the eligibility of an employee’s dependents to receive tax subsidies for Marketplace health coverage will be based on the affordability of the premium for family coverage through the employer group health plan. Finally, a fix to the family glitch!

The rule, effective January 1, 2023, clarifies that the benefits must meet ACA minimum value standards, which require the plan to provide a 60% actuarial value and must provide “substantial coverage” of inpatient hospital services and physician services. The new rule does not change an employer's obligation under the ACA employer mandate, nor does it impact an employer’s ACA reporting obligation.

 The IRS also released guidance creating another allowable mid-year election change for cafeteria plans. Employers may amend their Section 125 plan to allow participants to drop their family coverage in order for spouses and/or dependent children to enroll in ACA marketplace coverage.

Fixing the “family glitch”

Earlier in 2022, the Biden Administration, through Executive Order, instructed the IRS to close the loophole that caused the family glitch, which lead to the IRS revising their interpretation of the Affordable Care Act to allow employees’ family members the ability to qualify for premium tax credits for coverage through the Marketplaces. Effective January 1, 2023, the ability of spouses and dependent children to qualify for subsidized coverage will be based on whether the offer of coverage by an employer is affordable for those family members, not just if the employee-only coverage is affordable.

The “affordability” threshold used for the determination in 2023 is 9.12%. For example, if an employee is only insuring themselves, the monthly employee-only premium for the lowest cost medical plan offered by the employer (as long as it meets minimum value standards) must be less than 9.12% of their monthly income and, now, if an employee will cover their family, the monthly premium of the lowest-cost family plan offered must be less than 9.12% of the employee’s income. If the insurance premium for family coverage exceeds the income threshold, but the employee-only premium does not, then the family would be eligible for a subsidy to apply to the premium of a Marketplace plan, but the employee would not be eligible for the subsidy. In the scenario, the employee would obtain coverage through their employer, while the family would be able to enroll in coverage through the Marketplace and be eligible for a subsidy to make that premium affordable.

This fix to the family glitch is long over-due and is great news to the millions of people who have been impacted by it for the last 12 years. Those individuals will also benefit from enhanced premium tax credited, which began in 2021, as a provision of the American Recovery Plan, which was COVID relief legislation that intended to access to affordable health insurance during the COVID pandemic. The enhanced premium tax credits, most significantly, remove the all-or-nothing income threshold of 400% of the federal poverty limit. Regular premium tax credits had a maximum income threshold of 400% of the Federal Poverty Limit, which was around $69,000 for a tax household of two. Enhanced premium tax credits remove the 400% FPL threshold and replace it with an equation that factors in household size and how many of those family members will be covered on the Marketplace, income and the premium of the second lowest cost Silver plan available in the applicant’s zip code. Once that calculation is made, applicants will receive a premium tax credit (subsidy) for all costs beyond 9.12% of their income. Additionally the subsidies themselves were increased and expanded eligibility for people who live in a state that has not accepted the Federal funds to expanded Medicaid and who have an income between 100% and 150% FPL.

Millions of people were able to receive premium subsidies for the first time with expanded tax credits and now, following the passing of the Inflation Recovery Act passed by Congress in September 2022, those expanded tax credits have been extended through 2025! With all of these shifts in regulations, 2023 will very possibly be the most affordable year for those who will obtain their healthcare through the Marketplace since the Affordable Care Act plans were introduced 12 full years ago!