ACA’s ‘family glitch’ comes of age

hundred dollar bills with "affordable care act" displayed over it

Alarmed by fallout from the “family glitch” in the Affordable Care Act, Cerrina Jensen is calling on state and national legislators, business leaders and reporters to take action.

“I am so disturbed by what I’m seeing out there,” said Jensen, an employee benefits consultant with CoreMark Insurance Services in Sacramento, Calif.

A defect in the law, the family glitch turns up when employers offer health insurance to employees whose families are insured on the public health exchange. The employee may get access to affordable employer-based coverage, but their families get locked out of their exchange plan subsidies.

On the frontlines, Jensen knows two employees who quit their jobs when their employer began offering a comprehensive benefits package just to keep their tax subsidies.

Jensen has also seen a small business owner give up on a competitive decision to offer his employees health insurance. After an introductory employee meeting, staff members begged him not to offer it because their kids’ tax subsidies would get messed up. So he reluctantly decided not to offer it to any employees, including those who really wanted it.

“This is the family glitch coming of age,” said Bob Ellerbrock, an employee benefits attorney with Balch & Bingham in Birmingham, Ala. “You’re starting to see things play out.”

Small employers are better situated because they’re able to let their employees opt for the exchange, he said, but large employers are worse off because they must offer coverage or be penalized.

Understanding the glitch starts with understanding that the law says that while low- and middle-income people can get tax credits to help pay premiums on the exchange, they can’t if they have access to affordable coverage from an employer.

The question is: What is “affordable?”

The IRS has adopted a strict affordability test that takes two things into account: household income and the employer’s plan premiums. If the premiums are under the household income threshold (less than 9.66 percent of household income in 2016), they are deemed “affordable.” Trouble is, the premiums the IRS uses as a measure are for individual coverage, not the more pricey family coverage.

The reason the IRS adopted a strict affordability test had a lot to do with saving the government money. If the IRS allowed family members’ access to premium tax credits, the government’s costs would have risen.

Frank Fanshawe, a healthcare attorney with Wilson Elser Moskowitz Edelman & Dicker in Albany, NY expects it will take years before anything changes.

“Everything comes down to politics,” he said, “and the makeup of the Congress.”