The Biden Administration released a new final rule this morning that fixes the ACA’s family glitch:
These final regulations provide that, for purposes of determining eligibility for PTC, affordability of employer coverage for individuals eligible to enroll in the coverage because of their relationship to an employee of the employer (related individuals) is determined based on the employee’s share of the cost of covering the employee and the related individuals. As further explained in the Summary of Comments and Explanation of Revisions, the affordability rule for related individuals in these final regulations represents the better reading of the relevant statutes and is consistent with Congress’s purpose in the Affordable Care Act (ACA) to expand access to affordable health care coverage
What is the family glitch?
The ACA’s individual market is subsidized. It is the market of effectively last resort for people who can not get coverage. Or at least it is the subsidy of last resort. The market is set up so that if an individual has eligibility or an offer of adequate coverage from another source, the federal government won’t pay for the premium tax credits for an ACA plan for that buyer. An offer of adequate coverage can be Medicare, Medicaid, VA, or employee sponsored insurance among other sources. It is not unusual for a family with multiple members in it to be on multiple plans. It is quite conceivable for a family to have Adult #1 on an employer plan, Adult #2 on Medicaid, and all the kids on CHIP or Medicaid.
There was a problem known as the family glitch when Adult #1 has an offer of coverage through work which was deemed to be adequate and affordable for a single individual but totally not affordable for the rest of the family. Affordability of coverage means the employee portion of premium is under 9.61% of gross income. If the rest of the family could get other coverage through other means, great! However, the IRS interpreted the ACA to say that the rest of the family would be ineligible for ACA subsidies. It is not unusual for employee only coverage to be offered at 5% to 9.61% of gross salary but the family portion could easily cost more than 10% of salary.
This is the “family glitch.”
This is a regulatory interpretation of statutory language.
The new rule changes that interpretation. The new rule says that affordability of an offer of coverage will be determined at the level of the individual being offered coverage and not the household unit. If Adult 1 receives an affordable offer of employee only coverage, Adult 1 would no longer be eligible for ACA subsidies. If the family offer of coverage is not affordable, the rest of the family members are assessed for ACA subsidy eligibility independently of the employed adult.