Fixing the Family Glitch

The “Family Glitch” is a problem cited by many policy experts as a substantial flaw in the Affordable Care Act (ACA). Here is how it works: if an individual has a family income between 100-400% of the federal poverty level and is ineligible for financial support via Medicaid or the Children’s Health Insurance Program (CHIP), they can receive premium tax credits to subsidize the cost of their insurance plan’s monthly premium.

However, this is contingent upon not having affordable employer-sponsored insurance; this is defined as a total cost less than 9.66% of an individual’s income. A family is not eligible for premium tax credits if anyone in the family has an employer-sponsored health insurance offer that is considered “affordable,” but actually costs more than 9.66% of one’s income to cover the whole family.

A recent paper proposes some policy changes to address the Family Glitch that change the definition of what is considered affordable insurance. The most compelling proposal suggests changing the affordability test to base it on an employee’s contribution to family coverage rather than just their own individual coverage. This way, if coverage is considered unaffordable, the whole family will be eligible for premium tax credits in the Marketplace.

From the model, this change would allow 6.1 million more Americans to be eligible for Marketplace tax credits that would make purchasing insurance more affordable. Overall, after-tax premiums for all families affected by the Family Glitch will drop from costing 12.0% of their income to 6.3% of their income. Among these families, those who have the lowest income will benefit the most. Families will still be able to choose whether to enroll in employer-sponsored insurance or Marketplace insurance, but due to the newfound benefits, nearly 3.6 million people would be projected to switch to insurance in the Marketplace.

The downside with this plan is that federal expenditures would increase by nearly $6.5 billion in order to provide premium tax credits to those affected. This would translate to costing the federal government approximately $1,060 per person to provide 6.1 million people with affordable health care.

This Policy Prescriptions^® review is written by Ryan Jacobs as part of our collaboration with Baylor College of Medicine’s Health Policy Journal Club Elective.

Abstract

Under the Affordable Care Act, if one family member has an employer offer of single coverage deemed to be affordable-that is, costing less than 9.66 percent of family income in 2016-then all family members are ineligible for tax credits for Marketplace coverage, even if the cost of providing coverage to the whole family is greater than 9.66 percent of income. More than six million people live in such families and as a result are ineligible for premium tax credits. These families face premiums that can amount to 15.8 percent of income, or 12.0 percent after the tax advantages of employer-sponsored health coverage are factored in. We modeled the potential impact of changing the affordability test to take into account the cost of family coverage. Doing so would reduce spending on premiums from 12.0 percent to 6.3 percent of income, significantly alleviating financial burdens, but would generate little additional coverage. We estimated the additional costs to the federal government for premium tax credits and cost-sharing reductions to be between $3.7 billion and $6.5 billion in 2016. 

PMID: 27385230 Buettgens, M. et al. Health Affairs. 2016; 35 (7):1167-1175.