Q: Will fixing the family fault help my family?
AN: Maybe, but maybe not. As with most aspects of health insurance and health care reform, it’s complicated.
What is the family problem?
As a result of “family failure,” individuals applying for coverage on the marketplace/exchange are not eligible for premium subsidies if they have access to employer-sponsored health insurance that is deemed affordable and offers minimal value.
But the determination of affordability has always been based solely on the cost of the employee’s coverage, without considering how much the employee will have to pay to cover their family members. If the employee’s individual coverage is considered affordable, the entire family is considered ineligible for subsidies on the exchange, regardless of how much they have to pay for family coverage.
The proposed solution
Under the solution the IRS has proposed, the White House projected that nearly a million people will see their health coverage become more affordable and 200,000 uninsured people will gain coverage. But according to a KFF analysis, there are more than 5 million Americans who fall through the cracks of the ACA’s affordability provisions as a result of family failure. Clearly, not everyone will have more affordable coverage once the new rules are finalized. But this is certainly a step in the right direction.
The proposed rule change would make premium subsidies available to some of the people who are currently affected by family failure. Employees who are offered affordable health coverage would still not be eligible for premium subsidies in the marketplace. But if the employer-sponsored coverage offer for their families isn’t considered affordable, family members may be eligible for Marketplace subsidies. If you would like more information about the proposed rule change, we have a detailed explanation here.
However, the proposed rule would not change anything about the employer-mandated rules (which require large employers to offer affordable coverage to full-time employees, but no affordability requirements for family members). And it wouldn’t change anything about how premium tax credits are calculated when some family members are covered by a Marketplace plan while others are covered by an employer-sponsored plan.
Who will help solve family problems?
Let’s look at a couple of examples to illustrate a situation where correcting the family problem will help and one where it won’t.
tanya and renee
Tanya and Renee are 45 years old and have two children ages 8 and 6. Family income is $55,000. For 2022 health coverage, that puts them at 208% percent of the poverty level, which would allow them a robust market subsidy if they didn’t have an offer of coverage from an employer.
Tanya’s employer offers health coverage, but Renee’s does not. For Tanya to enroll on her own in her employer’s health plan, the monthly payroll deduction is $245. That’s just over 5% of her household income, so Tanya’s coverage offer is considered affordable. (In 2022, the affordability limit is 9.61% of household income.)
Under current rules, that means no one in the household qualifies for premium subsidies if they were to buy a Marketplace plan instead of taking employer-sponsored coverage. Unfortunately, the cost of adding Renee and the children to Tanya’s insurance is $1,100 a month. Therefore, covering the entire family with Tanya’s insurance will cost them $1,345/month, or 29% of their household income.
But the family lives in Iowa, where CHIP is available to children in households with incomes up to 307% of the poverty level. So your children can be covered for a total of no more than $40/month (does not apply during the COVID emergency period). But if Tanya adds only Renee to her employer-sponsored plan, the additional payroll deduction will be $600 per month. That puts the total premium for Tanya and Renee at $845/month, which is still more than 18% of their household income.
Under current rules, Renee can enroll in Tanya’s plan, where nearly 20% of family income goes toward health insurance premiums, or she can pay full price for a health plan in the Marketplace. (In her area, these plans range from $372/mo to $621/mo.) Renee is caught up in the family flaw.
If the new IRS rules were already in place, Tanya could qualify for a premium subsidy of $377 per month. This would make your marketplace plan options range in price from $0/month to $244/month. Even if you select the most expensive option, the total cost of Tanya’s employer-sponsored plan and Renee’s marketplace plan would still be less than $500/month. (Note that the subsidies are higher in 2022, as a result of the American Rescue Plan. Unless Congress takes action to extend those provisions, the subsidies will be lower in 2023.)
Daunte and Natasha
Now let’s consider Daunte and Natasha. They are both in their 30s with no children and live in Cleveland, Ohio. Daunte’s employer offers coverage for $200/month. But adding Natasha will bring the total monthly cost to $900.
Natasha is self-employed, so she does not have an employer-sponsored coverage option of her own. Her total family income is $60,000, so enrolling them both in Daunte’s employer’s plan will cost 18% of her income.
They have the option of having Natasha sign up for a plan through the marketplace, with plans ranging in price from $247/month to $586/month.
But even with family glitches fixed, Natasha won’t qualify for premium allowances on the market.. This is because the second lowest cost Silver plan (on which the subsidies are based) has a total cost of $288/month. That’s about 5.8% of your household income, which means no subsidy is available. (Your income is above 300% of the poverty level, so the price is considered affordable without a subsidy; here’s more on how it works.)
Again, it is important to remember that the grant amounts are based on how much the total market premiums are compared to the total familiar ingress. That’s true even if some household members are enrolled in out-of-market coverage.
If Natasha joins the second lowest cost Silver plan, her total monthly premiums will be $488. That represents about 10% of her household income. That’s probably still realistic for them, but it’s higher than the percentage of income they’d pay if Daunte didn’t have an employer-sponsored coverage offer and they both signed up for the Marketplace plan.
(If Daunte’s employer did not offer coverage, they would be expected to pay 7.1% of their household income for Marketplace coverage. A household income of $60,000 is 344% of the poverty level for 2022 coverage.) This is how your premium subsidy would be calculated They would qualify for a total subsidy of $221/month, and the second lowest cost Silver plan would cost $355/month for both of them).
So even though Natasha potentially eligible for premium subsidies under the IRS’s proposed new rule (because family coverage under Daunte’s employer plan would not be considered affordable), he would not actually end up eligible for any subsidies. Daunte and Natasha’s situation would be the same with or without the correction of the family problem. However, it is worth noting that if Natasha were 60 instead of 30, she would again be eligible for subsidies once the family problem is resolved. Here’s an example that illustrates that.
Family Troubleshooting – Your Mileage May Vary
These are just two examples. There are as many unique combinations of circumstances as there are people enrolled in Marketplace plans. Eligibility and premium subsidy amounts, even without the family glitch, depend on location, age, income and family size.
In the proposed new rules, the IRS noted that for a variety of reasons, “acceptance of Exchange coverage may be modest for eligible families.” Some families, like Tanya and Renee, may find that Family Breakdown Solution puts affordable coverage within their reach and will likely enroll at least some household members in newly available financial assistance Marketplace coverage. Others, like Daunte and Natasha, may find that their eligibility for the market subsidy does not change.
Still others may be newly eligible for Marketplace subsidies, but may decide to keep a higher-priced employer-sponsored family plan anyway. This could be due to better benefits, a stronger provider network, or more plan flexibility (for example, a PPO versus HMO in the marketplace; this varies from area to area).
The short story is that some people will find that they are much better off with the new rules, others will find that their options have not changed, and others will find that they have new options, but those new options may not be the best fit for their needs.
If you have an employer-sponsored coverage offer that seems inaccessible to your family, you’re probably somewhat familiar with family fault. The good news is that the flaw is likely to go away after the end of 2022. But you’ll have to check the specifics of your family to see how it will affect you.
Open enrollment for 2023 coverage begins in November, and it’s not too early to start thinking about your health insurance options for next year. If you are receiving quotes now, please understand that prices will change by 2023 and subsidies will not be as strong unless Congress takes action to extend the American Rescue Plan’s subsidy enhancements.
But you can ask your employer for a breakdown of premium costs for the employee and family members, and begin to get an idea of whether solving the family problem could open up new affordable options for your family.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinion pieces and educational articles about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by the media covering health reform and by other health insurance experts.