Family Glitch
Background
The ACA’s “family glitch” currently prohibits dependents from obtaining premium tax credits in the Marketplace if an employee in the household has access to “affordable” health coverage from their employer.
Employers are required to offer coverage to employees and children (not spouses) but are not required to contribute toward the cost of this coverage. Employer coverage was considered “affordable” if the cost for employee self-only coverage is less than an annual percentage of the employee’s income (9.61 percent for 2022).
New for 2023
Effective with the 2023 plan year, the “family glitch” rule will create a new affordability test to determine whether employer-provided coverage is affordable for the employee’s spouse and dependents (“related individuals”) in the same tax household.
For the affordability calculations, the relevant family members are those in the employee’s tax family, meaning the employee, a spouse filing jointly, or a dependent included on the employee’s tax return.
The affordability test would be the same for all coverage levels offered by the employer – the employee contribution toward family coverage cannot exceed that year’s defined percentage of
household income (9.12 percent in 2023). Keep in mind that employers can use an employee’s W-2 income for the affordability test for self-only coverage. However, affordability for family coverage will be based on the household income.
Key Facts
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Determining if the family plan is “affordable” is based on the lowest cost plan to cover the entire family, regardless of how many of them would enroll in coverage.
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The definition of “affordability” for the employee has not changed. It still looks at whether self-only coverage is less than a percentage of household income.
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If any of the family plans the employer offers is considered “affordable,” the employee and any eligible dependents cannot get financial help for a Marketplace plan.
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If a family pays more than a certain percentage of household income (9.12% in 2023) forthe employer-sponsored family plan, they may be eligible for financial help buying aMarketplace plan.
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Employers will not be subject to penalties if the family coverage is deemed unaffordable.
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Eligible family members can enroll in a plan during the Marketplace Open Enrollment Period from November 1 to January 15. This year, there’s a Special Enrollment Period that runs up to February 10. Otherwise, they may be able to enroll during the year when the employees are offered health coverage choices or if they qualify for a Special Enrollment Period to enroll in a Marketplace plan.
Example 1
Example 2
Bob is an employee with Group coverage through his employer. He has two children and a household income of $68,925. The monthly premium through his employer to cover his children is $565 per month for a total $6,780 annually. This is 9.94% of his total income and above the 9.12% affordability test. Therefore, Bob's children would be eligible for a premium tax credit.
As a reminder, were no changes in the rules for employee self-only coverage. If Bob’s employee self-only coverage is affordable, then he cannot receive Marketplace tax credits. He can decline employer coverage and enroll in a Marketplace plan, but would not receive tax credits.
Dave and his wife have two children. They have a household income of $53,928 before taxes. The children have health coverage under the Children's Health Insurance Program (CHIP) since the before tax income is below $55,000.
However, the cost for Dave to cover his wife under his employer group coverage is $512 per month for a total of $6,144 annually. This is 11.39% of his total income and above the 9.12% affordability test. Therefore, Dave's wife would be eligible for a premium tax credit.
As a reminder, there were no changes in the rules for employee self-only coverage. If Dave’s employee self-only coverage is affordable, then he cannot receive Marketplace tax credits. He can decline employer coverage and enroll in a Marketplace plan, but would not receive tax credits.
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