Ding Dong the “Glitch” is Dead

New regulations will increase the annual deficit and national debt ultimately shouldered by taxpayers – today and tomorrow.

The Biden Administration recently finalized regulations to extend taxpayer subsidized medical coverage to millions of Americans who may not have previously qualified for the subsidy. They accomplished this by updating the 2013 definition of “affordability” with respect to those eligible for employer-sponsored family coverage.[i]

The Patient Protection and Affordable Care Act of 2010 (ACA) benchmark percentage of household income, used to determine whether employer-sponsored health coverage is affordable, will experience a significant decrease from 9.61% (2022) to 9.12% (2023).

The Biden Administration is celebrating this expansion of taxpayer financed coverage which will add to our annual deficit and national debt.[ii] While the Biden Administration estimates that one million more Americans will receive taxpayer-subsidized coverage in 2023, industry sources suggest that number could be substantially larger, as many as five million[iii], perhaps growing to tens of millions depending upon the reaction of employers.

While individuals who are “lawfully present” in America have access to coverage via the public exchange, only certain individuals qualify for taxpayer subsidies. These two changes, the lower percentage coupled with the new regulatory interpretation of “affordability,” will extend subsidized coverage options to lower income workers and their family members. Millions more will become eligible for taxpayer subsidized coverage.

Going forward, affordability will be determined by measuring the employee’s contribution (plus any spousal opt out incentive) for all family coverage tiers offered by the employer-sponsored plan against the product of the affordability percentage times household income. This is best illustrated with an example comparing 2022 and 2023:

Eligible individuals: Employee and Spouse

Assumed same contributions and same income both years

Payroll Frequency: Biweekly

Salary: $1,000/payday, $26,000/year

Spousal surcharge/month[iv]: $100

Employee contribution, single tier: $100/month, $1,200 a year

Employee contribution, EE & Sp tier: $200/month, plus $100/month surcharge, $3,600 a year

Affordable in 2022: $1,200 < $2,501 ($26,000 * .0962)

Individual continues to be affordable in 2023: $1,200 < $2,371[v] ($26,000 * .0912)

Spouse is now unaffordable in 2023: $2,400 > $2,371

While it is not clear how employers will respond, we expect two responses in 2023 and future years:

  • Inertia: Employers will leave current coverage strategies in place – especially for 2023 given that this change was announced mid-October, and/or
  • Aggression: Employers who have struggled to fund coverage and those who experience substantial cost increases due to current levels of inflation may make last-minute strategic changes to encourage family members currently enrolled in employer-sponsored coverage to migrate to the public exchanges (and/or Medicaid).

For 2023, many employers will maintain the status quo. However, others may take action to make family coverage “unaffordable”. Where that occurs, IRS Notice 2022-41 will permit the revocation of cafeteria plan elections of family coverage in certain situations so that family members may enroll in Marketplace coverage.[vi] This change is similar to one provided by IRS Notice 2014-55 that expanded the cafeteria plan change in status rules to permit employees to revoke elections for job-based coverage to enroll in Marketplace coverage under certain circumstances. While employers are not required to amend their cafeteria plan to adopt every “change in status” permitted by code and regulations, most employers will want to avoid the criticism that would likely result when a family member’s coverage is not allowed to be discontinued.

Assuming this new regulation remains in effect, over time, more employers are likely to make strategic changes designed to ensure their workers have access to additional, taxpayer-subsidized coverage choices.

As your partner, aequum helps lower costs, achieve savings and support your plan member experience and success in 2023 and beyond. Please contact us to discuss this change or pursue a strategic response to these new regulations. For more information, visit www.aequumhealth.com.

[i] Internal Revenue Service, Affordability of Employer Coverage for Family Members of Employees, 10/13/22. “Section 36B(c)(2)(C) generally provides that an individual is not treated as eligible for employer coverage if the coverage offered is unaffordable … Under the affordability test in section 36B(c)(2)(C)(i)(II), an employee who does not enroll in employer coverage is not treated as eligible for the coverage if “the employee’s required contribution … with respect to the plan exceeds 9.5 percent of the applicable taxpayer’s household income.” …  under the 2013 affordability rule, the employee’s share of the premium for family coverage, as defined in § 1.36B-1(m),[6] was not considered in determining whether employer coverage is affordable for related individuals (family members). …  Thus, if the cost of self-only coverage is affordable, no (premium tax credit) PTC is allowed for the Exchange coverage of related individuals even if family coverage through the employer costs more than 9.5 percent of household income. … (this regulation) for purposes of determining eligibility for PTC, affordability of employer coverage for related individuals in the employee’s family would be determined based on the cost of covering the employee and those related individuals … affordability for related individuals would be based on the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee’s family, within the meaning of § 1.36B-1(d), who are offered the coverage. … regulations would not change the affordability rule for employees. As required by statute, employees have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income.” Accessed 10/20/22 at: https://www.federalregister.gov/documents/2022/10/13/2022-22184/affordability-of-employer-coverage-for-family-members-of-employees

[ii] Author’s Note: There is no new funding source for this expansion in eligibility. See also: Statement by President Joe Biden on “Family Glitch” Final Rule, 10/11/22. “Health care should be a right, not a privilege. But for many Americans caught in the so-called “family glitch,” the peace of mind that health insurance brings has remained out of reach. Because of this glitch, employer-based health insurance has been considered “affordable” if the coverage is affordable for the employee even if it is not for their family members—making those family members ineligible for Affordable Care Act subsidies even though they need them to afford quality coverage. … About 1 million Americans will either gain coverage or see their insurance become more affordable as a result of the new rule. This marks the most significant administrative action to implement the Affordable Care Act since the law was first put into place. “Accessed 10/20/22 at: https://www.whitehouse.gov/?s=family+glitch

[iii] C. Cox, K. Amin, G. Claxton, D. McDermott, The ACA Family Glitch and Affordability of Employer Coverage, Kaiser Family Foundation, 4/7/21. (Using an affordability percentage of 9.83%, and 2019 data from the Current Population Survey (CPS),) “we estimate how many people are affected by the family glitch across three groups: dependents with employer coverage, those with individual market coverage, and those without health insurance. In all three groups, we exclude people who are eligible for a public program (Medicare, Medicaid, the Children’s Health Insurance Program, or Basic Health Program). Dependents were considered as falling in the family glitch if a worker in the family had an employer offer of affordable self-only coverage but unaffordable family coverage. … In total, we find more than 5.1 million people fall in the ACA family glitch. The vast majority of those who fall in the glitch, 4.4 million people (85%), are currently enrolled through employer-sponsored health insurance. … One study estimated that those who fall into the family glitch are spending on average 15.8% of their incomes on employer-based coverage.” (emphasis added by Author) Accessed 10/20/22 at: https://www.kff.org/health-reform/issue-brief/the-aca-family-glitch-and-affordability-of-employer-coverage/  See also: IRS, Note I, supra. For comparison, in the final regulations, the IRS estimated a range of between 600,000 and 2.3 million, plus between 80,000 and 700,000 who will go from being uninsured to insured.

[iv] Author’s Note: A spousal surcharge applies in this example where a spouse has access to unaffordable coverage from their employer’s plan.

[v] Because the employee coverage continues to be affordable in our example, no employer penalty would be assessed should the spouse enroll in coverage through the public exchange – Internal Revenue Code Section 4980H.

[vi] Internal Revenue Service (IRS), Additional Permitted Election Changes for Health Coverage under Section 125 Cafeteria Plans, Notice 2022-41. “A non-calendar year cafeteria plan may allow an employee to revoke

prospectively an election of family coverage under a group health plan that is not a health FSA and that provides minimum essential coverage (as defined in section 5000A(f)(1)) provided the following conditions are satisfied:

(1) One or more related individuals are eligible for a special enrollment period to enroll in a QHP through an Exchange … or one or more already-covered related individuals seeks to enroll in a QHP during the Exchange’s annual open enrollment period; and (2) The revocation of the election of coverage under the group health

plan corresponds to the intended enrollment of the related individual or related individuals in a QHP through an Exchange for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked. “Accessed 11/3/22 at: https://www.irs.gov/pub/irs-drop/n-22-41.pdf