Elimination of the Family Glitch?

The current administration intends to fix the “family glitch” under the Affordable Care Act (ACA).

Under the ACA, an employee may be eligible for a premium tax credit if the employer-sponsored group health plan costs more than 9% of the employee’s income. The “family glitch” disqualified employees dependent from receiving tax credits even if the family was spending more than the 9% of household income towards the group health premium.

Affordable Care Act (ACA)This could all change starting Jan. 1st, 2023, as President Biden has issued an Executive Order on fixing the family glitch. Under the executive order, if the dependents of the employee are spending more than 10% of household income towards the group health premium, they could qualify for premium assistance on the exchange.

Let’s the Family Glitch with the Affordable Care Act (ACA) into perspective:

Family of four with a household income of $75K. 

They could not spend more than $625 a month towards the premium on a group health plan under the Affordable Care Act (ACA). If that family was contributing more than the 10% of income, the employee dependents could go to the marketplace and purchase an individual policy with premium assistance.

Look at those three family members’ estimated cost on the exchange with premium assistance—a 40-year-old with two kids residing in Indianapolis, Indiana. They could receive $584 a month in premium assistance towards an individual health plan.

The lowest costing plan would cost the family $138 a month, saving $5,800 a year vs. the group cost. That is a trip to Disney world or cover their deductible should they have claims.

The executive order appears to state that employers would not face a penalty if the dependent coverage were deemed not affordable. If this is the case, we could see a significant shift in employer contributions toward dependents in specific industries, especially smaller employers. Suppose the average employer-sponsored health premium for a family is $24K in Indiana, and the employer is paying $16K of that. In that case, a company could make contributions adjustments, especially if the employees could save money by going to the exchange. In fact, in some industries, employees may prefer moving their dependents to the exchange.

The family glitch fix with the Affordable Care Act (ACA) is enormous, and we could see 5 million people eventually move from employer-based coverage to individual marketplace coverage. For Indiana, if our average family income is around $75K, the above example may be very realistic to many Hoosiers.

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