Estimated reading time: 7 minutes
Just in case you missed it, late last year, the Biden Administration issued a final rule which closes what is called the “family glitch” under the Affordable Care Act (ACA). Basically, the family glitch was an Internal Revenue Service (IRS) rule that kept families from qualifying for ACA subsidies when one member of the family received employer health care coverage that was considered “affordable” – even if the cost for family coverage was unaffordable.
The family glitch had an impact primarily on lower-income workers because they were unable to receive the subsidies that would allow them to buy health care insurance through the ACA marketplace.
Employers need to be aware of this change and how it can impact employee benefits. To help us understand what closing the Affordable Care Act’s family glitch means for employee benefit plans, I asked Cory Jorbin, Esquire, from HUB International to share his insights. Cory is the chief compliance officer for HUB’s employee benefits west region. In his role, Cory provides day-to-day compliance support to clients of all sizes on the Employee Retirement Income Security Act (ERISA), the Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act (HIPAA), the Family and Medical Leave Act (FMLA), and other related matters. Cory helped us a few months ago learn more about Individual Coverage Health Reimbursement Arrangements.
While Cory is a licensed attorney and is admitted to practice before the United States Tax Court, please remember his comments should not be construed as legal advice or as pertaining to any specific factual situations. If you have detailed employee benefits questions, they should be addressed directly with your benefits broker or friendly neighborhood labor and employment attorney.
Welcome back, Cory. Tell us briefly about the “family glitch” under the Affordable Care Act (ACA)?
[Jorbin] Under the ACA, if an employee was offered affordable, minimum value coverage, the employee’s spouse and dependent children were automatically ineligible for premium tax credits or subsidies to purchase discounted coverage on the exchange. This glitch resulted from the fact that the affordability and minimum value requirements were tied only to the employee only tier of coverage, not tiers of coverage applicable to the employee’s family members.
We know that the Biden Administration closed the “family glitch”. Does this impact any other aspects of the ACA?
[Jorbin] The closing of the family glitch greatly expands subsidy eligibility. As a result, exchanges have seen increases in enrollment, which may reduce adverse selection in the individual market and ultimately help stabilize individual market rates. At least some of the increased enrollment will be coming from spouses and children who were previously enrolled in group health plans. If these plans were self-insured and subject to the Patient Centered Outcomes Research Initiative (“PCORI”) fee, those employers will see their fees reduced. The PCORI fee is an annual fee based on plan enrollment that is aimed at helping patients, clinicians, purchasers, and policymakers make better-informed healthcare choices by advancing clinical effectiveness research.
Why should organizations care about the closing of the “family glitch”?
[Jorbin] Employers should use the closing of the family glitch as an opportunity to reevaluate their contributions towards family coverage. While the glitch was in place, employers may have seen employees enroll their spouses and children in the employer’s plan despite it being unaffordable.
Typically, employers also try to manage their premium increases across all tiers from one year to the next. The closing of the family glitch provides employers with a reset because employees will be able to show their employers (via the enrollment of their spouses and children in the health plan) whether the employer’s premiums are affordable. By reevaluating contributions, the employer can better understand whether their health plan premiums are meeting the needs of their employees and their families. For example, if the employer sees many spouses and children of lower earning employees leave their plan, this may be an indication the family premiums are beyond reach for many employees. In turn, this could prompt the employer to add a less expensive plan option for family coverage.
Some employers might view the closing of the ‘family glitch” as a good thing. Meaning that they will see a decrease in enrollments – because employees can take advantage of the subsidies. But is it really good for organizations? Why or why not?
[Jorbin] While the glitch was in place, employers may have seen employees enroll their spouses and children in the employer’s plan despite it being unaffordable. The removal of the glitch now allows the spouse and children to potentially leave the group plan and enroll on the exchange.
Some employers may be happy to see their overall enrollment decrease, however others may not, due to the potential for adverse selection. In other words, those who leave the group plan may be low utilizers of the plan, who are eager to pay less for coverage they hardly use anyway. Meanwhile, if family coverage is affordable for those who regularly utilize the plan, the plan will see lower enrollment overall, but a greater percentage of those who incur claims.
A lot of organizations hold employee benefits open enrollment in Q4, so plans and rates could be locked in for 2023. Is there anything that employers should be doing now at the start of a new year?
[Jorbin] Once the plan year has begun, changes to rates are possible, but not very common and potentially disruptive. Employers who sponsor calendar year plans however can begin planning for their 2024 plan years. A good starting point would be looking at family tier contributions and assessing whether an average employee can afford these rates.
ACA affordability is 9.13% for 2023. If your lowest cost, family tier of coverage is 12%, 15%, 18% or more of your average employee’s rate of pay, this might be an indication that spouses and children are eligible for subsidies. Employers can also consider doing benefits surveys to understand what employees think of the benefits and rates. This could be a great way to gather information about how employees view the benefits offered by the employer. Off-calendar year plans can do all this now, before their 2023 renewals.
Great point about examining employer contribution strategies. That leads us to our last question. Is there anything else that employers should be thinking about as they start planning for their next enrollment period?
[Jorbin] I suggest that employer’s think about the big picture and not just focus on potential decreases in enrollment. This means thinking about how your family premiums fit into your overall culture. For example, if you provide paid parental leave, or paid family leave (other than when required by law) but your family medical premiums are high, you’re sending an inconsistent message to employees. Likewise, consider how family premiums impact your talent acquisition strategies. High family premiums may lead to candidates declining job offers.
Finally, do understand that plan enrollment may be impacted, but that not all drops in enrollment are good. Spouses and dependents who move to exchange plans may actually be those who are considered good risk, and only incur limited claims. If this is the case, the overall risk profile of the plan changes, because now the plan has fewer enrollees, but more enrollees who incur claims. Over time this can lead to adverse selection, where poor plan performance is driven by a limited number of individuals.
A huge thanks to Cory for sharing this information with us. If you want to learn more, HUB has more in-depth information in their employee benefits compliance directory.
This is a perfect example of why compliance is an important and strategic part of human resources. What might seem on the surface like a little closing of a glitch can have a big impact on employees and the business.
Image captured by Sharlyn Lauby while exploring the National Atomic Testing Museum in Las Vegas, NV
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