Back in April, we reported on a plan by the Biden administration to fix the ACA’s “family glitch.” As a reminder:

IF

  1. an employee has access to health coverage through his or her employer, 
  2. the employee’s family members are eligible to enroll in the plan, and 
  3. the cost of employee-only coverage is affordable (meaning that, after accounting for the employer contribution, the employee would spend less than 9.61% of his or her entire household income on the monthly premium just for the employee’s coverage),

THEN

  1. the coverage is considered affordable for the entire family, even if the employer is not contributing to the cost of dependent coverage, and
  2. the entire family is blocked from receiving a premium tax credit through the federal or state marketplace.

Crazy, huh? Well, most brokers think it is, and their clients certainly don’t like the rule. And, in April, the Biden administration promised to change the way “affordability” is determined for family members, which would open up access to the subsidies for millions of Americans who are currently eligible for employer-sponsored coverage as a dependent.

For agents who sell individual products, this would also create a lot of new prospects. In fact, the Kaiser Family Foundation estimates that 5.1 million Americans are affected by the family glitch.

In our April blog post, we noted that “the IRS has only issued a notice of proposed rulemaking. There will be a public hearing, proposed regulations, and a comment period before the rule is finalized. That could still take several months. And, of course, there could be court challenges by those who are opposed to the rule change.”

Since that time, there has been some pushback on the proposal, with some questioning whether the administration actually has the authority to make this change, or if it would instead require an act of congress. 

For instance, a June 23 HealthAffairs article by Doug Badger argues that the “newly proposed affordability test is contrary to the statute” and that “The agencies offer a deeply flawed rationale for legislating a new affordability test for dependents, confusing an exemption from the ACA's tax penalty on the uninsured for an entitlement to tax credits.”

Mr. Badger, who is both a Senior Fellow at the Center for Health and Welfare Policy at the Heritage Foundation and a Senior Fellow at the Galen Institute, believes that “Congress alone has the institutional capacity to weigh the upsides and downsides of ‘fixing’ the ‘family glitch’ and the constitutional authority to amend the statute.” He says that “The agencies should withdraw their unlawful proposal and instead ask Congress to enact the policy they favor.”

And he’s not the only one who feels that way. In May, Senators Pat Toomey [R-PA], Richard Burr [R-NC], and Bill Cassidy [R-LA] sent a letter to IRS Commissioner Charles Rettig detailing their serious concerns about the proposed regulatory change. In the letter, they state that the new proposal “runs contrary to the long-held position of the IRS, including under former President Obama,” that “individuals are ineligible to claim premium tax credits (PTCs) if they have an offer of affordable employer coverage as determined by the employee’s required premium contribution for self-only coverage (9.61% of income in 2022).” They go on to explain that “If the employee’s family is also offered coverage, they are also ineligible for PTCs.”

The Senators believe that the wording of the Affordable Care Act is clear and point out that both the IRS and the Government Accountability Office confirmed back in 2013 that congressional intent was for affordability to be based on the cost of individual, not family, coverage. They conclude that “The IRS has no constitutional basis for unilaterally changing the laws Congress has enacted” and encourage the agency to reconsider its position.

Long story short, while most brokers and clients would like to see the family glitch go away, this is not yet a done deal. We’ll keep an eye on this proposed rule change and will let you know if there are any updates.