‘Glitch’ in the Affordable Care Act may be repaired

Biden has proposed a regulation that revises interpretation of tax credit rules

A “family glitch” in health insurance under the Affordable Care Act has meant a costly loophole for many Americans.

The glitch refers to federal rules that make it hard for relatives of people with job-based health insurance to qualify for financial help in buying more affordable coverage on government marketplaces.

The Biden administration has proposed fixing the problem with a regulation that revises an interpretation of the rules for tax credits under the act, also known as “Obamacare.” If the change is finalized, hundreds of thousands of people — mostly children of lower-income families and women — could become eligible for more affordable coverage.

“These folks have been left out,” said Katie Keith, director of the Health Policy and the Law Initiative at Georgetown University Law Center.

Affected families would save an average of $400 per person a year on health insurance premiums once the glitch is fixed, and low-income families would save even more, the Urban Institute estimates.

What is the glitch? If a family member can get affordable individual health coverage through a job — even if the cost of covering the worker’s dependents is too steep — the rest of the family generally cannot qualify for tax credits to help buy lowercost insurance on the federal website healthcare.gov or the state insurance marketplaces.

A workplace plan is considered “affordable” if the premium for covering just the employee — not a spouse or children — is less than about 10% of the family’s income. Family premiums, however, are typically higher and may exceed that threshold.

The problem is that the affordability test does not take into account the cost of insuring the whole family. “It only considers coverage for the actual employee,” said Jodi Ray, director with Florida Covering Kids & Families, an initiative at the University of South Florida College of Public Health that works to enroll uninsured people in affordable health coverage. “It really disadvantages people.”

The average premium paid by a covered worker for single coverage in 2021 was $108 a month, compared with $497 for family coverage, according to the Kaiser Family Foundation.

The glitch means that families end up paying higher and less affordable premiums for the job-based health insurance — or skipping coverage altogether.

About 90% of people affected by the glitch are buying coverage deemed unaffordable, according to the Urban Institute’s analysis. In other words, while most people affected by the glitch enroll in coverage rather than going uninsured, “they’re paying through the nose,” Keith said.

If the glitch is fixed, the cost of job-based coverage would need to be considered affordable for the entire family. If the coverage was not affordable, the rest of the family — other than the covered employee — would then qualify to shop on the exchanges, using tax credits to reduce their premiums.