On April 5, President Obama returned to the White House for the first time since leaving office. As CBS News reports, the purpose of the visit was to mark the 12-year anniversary of the Affordable Care Act, a law so closely linked with the former president that it is often referred to as “Obamacare.”
President Biden used the occasion to announce actions his administration is taking to fix the “family glitch,” which blocks most employees’ family members from receiving a premium tax credit in the individual market if they are eligible to enroll as a dependent on the group health plan, even if the employer does not contribute toward the cost of dependent coverage.
In a White House fact sheet, the Biden administration says that “ACA premiums are at an all-time low” and that “enrollment is at an all-time high.” To continue that trend, “the Biden-Harris Administration is proposing a rule to strengthen the ACA by fixing the ‘family glitch,’ which would save hundreds of thousands of families hundreds of dollars a month.”
Eligibility for Premium Tax Credits
Ever since its passage more than 12 years ago, the ACA’s “family glitch” has been one of the least popular parts of the health care law. As the Kaiser Family Foundation (KFF) explains, financial assistance through the ACA’s marketplaces “is primarily available for people who cannot get coverage through a public program or their employer,” but there is an exception if the employer-sponsored plan does not provide minimum value or is unaffordable.
To provide “minimum value,” the plan must include coverage for inpatient hospitalization and pay, on average, at least 60% of the claims costs. To be “affordable,” the employee’s cost of health coverage must not exceed 9.83 percent of his or her household income (after accounting for any employer contribution).
What is the Family Glitch?
The problem, according to KFF, is that the affordability calculation is based on the cost of single coverage, not family coverage. Since the cost of employee-only coverage is much less than the cost of family coverage, and because it’s often heavily subsidized by the employer, the employee’s cost is usually much less than 9.83 percent of household income. This “means that the employee and his or her family members are ineligible for financial assistance on the Marketplace, even if the cost of adding dependents to the employer-sponsored plan would far exceed 9.83% of the family’s income.” This definition of affordable coverage is known as the “family glitch” because coverage is considered affordable for the family members even though it's not actually affordable.
A Regulatory Fix
While pretty much everyone has acknowledged for the last 12 years that this is a “glitch,” the general consensus was that it would take an act of Congress to correct the problem. However, the Biden Administration plans to fix the glitch through regulatory action—a change in the interpretation of the law.
The notice of proposed rulemaking from the IRS, published in the Federal Register April 7, 2022, states that the proposed rule “would amend the existing regulations regarding eligibility for the premium tax credit (“PTC”) to provide that affordability of employer-sponsored minimum essential coverage (employer coverage) for family members of an employee is determined based on the employee's share of the cost of covering the employee and those family members, not the cost of covering only the employee.”
The notice goes on to say that “the Treasury Department and the IRS have reexamined the current interpretation of section 36B” of the tax code, the section that governs the premium tax credit. In the analysis, Treasury and the IRS have determined that IRC section 36B “does not compel the result that if self-only employer coverage is affordable for an employee, then the coverage also is affordable for a spouse and any dependents. To the contrary, the Treasury Department and the IRS believe that the statute is better read to require a separate affordability determination for employees and for family members.”
This is a conclusion that has been obvious to most of the health insurance industry ever since the ACA became law.
President Biden’s Executive Order
This decision to amend the definition of affordability for family members is the result of a review requested by President Biden in a January 28, 2021 executive order. As explained in the notice of proposed rulemaking, E.O. 14009, which Biden signed just one week after taking office, “directs the Secretary of the Treasury to review, as soon as practicable, all existing regulations and other agency actions to determine whether the actions are inconsistent with the policy to protect and strengthen the ACA.” Further, the order also directs the Secretary of the Treasury, as part of this review, to examine policies or practices that may reduce the affordability of coverage or financial assistance for coverage, including for dependents.”
After conducting the review, the “Treasury Department and the IRS are now of the view that the interpretation in the current regulations unduly weakens the ACA by basing affordability solely on the premium cost for the employee's self-only coverage and, therefore, the interpretation in the current regulations is contrary to the policy of the ACA to expand access to affordable health care coverage.”
Not an Instant Fix
Again, to this point 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.
What does this mean for brokers and their clients?
Most agents who work with AHCP sell individual health plans, so it should be obvious why this proposed rule is important. Currently, millions of Americans are ineligible for premium tax credits in the individual market because they are eligible to enroll as dependents on a group health plan. Once this rule is finalized, they may qualify for financial assistance through the marketplace, which will give agents a lot more people they can help. Keep an eye on this rule; it could have a big impact on your business in the coming months.