Fixing the "Family Glitch"

The news that regulators have finally “fixed the Family Glitch” has many employers scratching their heads.?Questions like “What must I do?” and “How will this affect my employees?” and “How will this affect my Plan?” are all bouncing around.?Let’s take 2 minutes to look at this topic and try to answer some of these brand-new questions.

What is the Family Glitch??Under the Affordable Care Act (ACA), eligibility for federal subsidies when someone purchases medical insurance from a government Exchange is based on household income and whether or not that individual was offered “affordable” coverage from an employer plan.?Since the ACA was implemented, “affordable” has only been defined based on the single employee cost.?Therefore, if an employer offered affordable single employee coverage, nobody in that employee’s family was eligible for a subsidized Exchange coverage.?This was regardless of whether or not family coverage was offered, or at what price.

It's a “glitch” because families weren’t eligible for subsidized coverage because the employee-only cost was affordable under the law.

What changed in October 2022??Regulators changed the definition of affordable family coverage to reflect the cost of participating in employer-sponsored plans as a family.?In other words, family members may get a subsidy even if the primary employee has affordable coverage under the employer-sponsored plan.?

When does this go into effect??Immediately.?With Exchange enrollment season opening in two weeks, people will see new subsidy eligibility reflected in their enrollment for 2023.

How many people will be impacted??Potentially millions.?Remember, Covid relief increased subsidies (scheduled to continue through 2025) already. ?Even those earning over 400% of the federal poverty level are eligible for subsidy if their employer-sponsored plan contribution exceeds 8.5% of income.?Making it easier to qualify for subsidies just increases the pool of people who may find that medical insurance through the Exchange is cheaper than buying family coverage through their employer.

Does this mean that an employer is subject to an ACA penalty for not offering “affordable coverage” to families??No.?The penalty under ACA remains based on the employee-only cost of the lowest-cost qualifying coverage.?This change only affects the family’s eligibility for a subsidy if purchasing coverage through the Exchange.

What must an employer do??Nothing.?There are no new reporting or disclosure requirements. We anticipate that Exchange notices will be amended in some fashion going forward.

What are likely implications??We can’t predict all possibilities since this change is only 2 days old.?Here are some possibilities:

• Clearly, many more people will now be eligible for subsidies through Exchanges, based on income and the cost of employer-sponsored plans.
• Families may drop off employer-sponsored medical programs in favor of buying less costly (because of subsidies) medical coverage through the Exchange.?Remember, that decision isn’t based solely on cost; coverage levels, networks, and plan types are also important factors in decision making.
• Employers may change strategies related to dependent costs to remain an employer-of-choice to enhance efforts to recruit/retain employees.
• Employers with lower-wage employees may decide to encourage families to drop their plan in favor of subsidized Exchange coverage as a strategy to lower expenses.
• Significant migration to Exchange coverage could change insurers’ risk pools and impact costs in future years, both for employer plans, and those offered through Exchanges.
• On a macro level, federal government costs will dramatically increase as more people seek subsidies.?The impact on deficits and inflation will be something that economists will be trying hard to predict.

What to expect.

• You may find that more employees want guidance during this open enrollment season.?
• You may get more questions about Exchanges than ever before.?
• Consider how you may, or may not, want to address the family glitch in benefit communications.?
• Begin having conversations with your benefits advisors about potential impact on future costs.?
• Look for information from vendors and learn how this change may affect your plans.?

If you have any questions, please feel free to reach out.