Some of your employees may now be eligible for Marketplace subsidies
The definition of “affordable” group coverage has been problematic since the arrival of the Affordable Care Act (ACA) in 2013. Known as the “family glitch,” it has barred millions of employees from receiving subsidized health insurance through the Marketplace.
Just in time for January 2023 enrollment, the IRS has fixed the “family glitch.” This means that some of your employees may now be eligible for Marketplace subsidies.
Here’s what you need to know.
Exactly what is the “family glitch?”
The ACA Marketplace is generally available to individuals and families who do not have access to employer group coverage. However, individuals whose group coverage is unaffordable do have access to the Marketplace and subsidies.
The “family glitch” refers to a 2013 ACA rule that based eligibility for a family’s premium subsidies on whether their employer group’s insurance was affordable. Up until now, only the cost of single (employee) coverage was evaluated. The plan had to cost no more than 9.12% of the family household income.
Beginning in 2023, what had been known as the “family glitch” has been corrected. This means that in order to establish affordability, the cost of the family coverage will be considered for employees selecting that type of coverage.
Put simply, instead of looking at the premium for single coverage, the family premium will be considered as well.
Why do I need to know about it?
As a result of this change, there is a chance that some of your employees who select family coverage will be eligible for Marketplace subsidies.
How many people are expected to move?
According to models from the management consulting firm Oliver Wyman, approximately 1% to 3% of the population will be affected by this “fix” to the family glitch. Not all of these people will choose to move to the Marketplace. Their models project 2 million consumers will make the move to the ACA Marketplace. In Kansas, it’s estimated that 2.1 percent of the population lives in the “family glitch,” and 52,000 people would be eligible to move to Marketplace plans.
What’s should I do about it?
You may have employees who are newly eligible for subsidies based on the new rules. To determine if any of your employees might fall into that category, talk to your Blue Cross and Blue Shield of Kansas representative. Or, you can do a rough estimate on your own (see below). Depending on what you learn, you may want to alter your contribution. (Remember: The affordability test is based on a family’s total income.)
Take action now.
If you believe you have employees who will now be eligible for Marketplace subsidies, you should inform them now. To help your employees choose the Marketplace plan and subsidy that is best for them, direct them to healthcare.gov
Consider this example of how the family glitch worked before and after 2023:
BEFORE THE “FIX”:
- An employer group has a plan where the single coverage is $700 per month and the family coverage is $2,000 per month.
- This group contributes $400 per month for each employee’s coverage. So, the single plan costs the employee $300 per month.
- Before the fix to the family glitch, the math looks like this: ($300 / 9.12%) X 12 months = $39,473.
- That means only employees making an annual salary of $39,473 or less would be eligible for a Marketplace subsidy. That’s because the single premium would not be more than 9.12% of the family’s household income.
In the past, only single coverage was considered. As a result, few people who were offered group coverage were eligible for Marketplace subsidies.
AFTER THE “FIX”:
- In 2023, let’s consider the same employer group and the same contributions. For an employee who plans to cover a family, the cost will be $1,600 per month.
- With the fix to the family glitch, the math looks like this: ($1,600 / 9.12%) X 12 months = $210,526.
- This means employees whose household income is less than $210,526 a year would be eligible for a Marketplace subsidy. That’s because the family premium would be more than 9.12% of the family’s household income.
Let’s look at another after-the-fix example:
- A group has a plan where the single coverage is $600 a month and family coverage is $1,800 a month.
- This group contributes $600 a month for single coverage and $1,000 a month for family coverage.
- So, the cost of a single plan, for an employee, is $0 a month. The cost of the family plan would be $800 a month.
- With the fix to the family glitch, the math looks like this: ($800 / 9.12%) X 12 months = $105,263.
- In this case, any employee who selects family coverage and whose family income is below $105,263 would be eligible for the Marketplace subsidies.
Resources: KFF: Last year I tried applying for subsidized Marketplace plans but I wasn’t eligible for financial help due to the “family glitch.”, KFF: The ACA Family Glitch and Affordability of Employer Coverage, Health Insurance