Final Ruling Seeks To Fix Family Glitch
The Family Glitch:
It came about because of specific wording in the ACA and subsequent regulations that define affordability as not based on self-only coverage. But based on coverage offered by an employer to the employee’s spouse, not what coverage is offered then to spouses and dependents of the employer.
Before The Final Rule:
The family glitch came about because, let’s say, Mike, the husband, is employed by his architecture firm. They offer Mike employer-sponsored coverage that meets the affordability calculation and is not more than 9.5% of his income; however, the employer offers coverage to the spouse and dependents. Still, they don’t provide any contribution towards that coverage. Suppose Carol and the kids try to go to the exchange and get a tax credit. In that case, they won’t be able to because, under the family glitch, the affordability is based on the employee’s offer of coverage from the employer.
In This Scenario:
Mike has an affordable offer of coverage as an employee on the employer plan. They would say that Carol and the kids had an affordable offer of coverage. Though the employer is not contributing anything towards that coverage for Carol and the kids, you can see how this could create a situation.
Because that employee has an affordable offer of coverage from the employer, it could block spouses and dependents from going into the exchange and potentially getting a premium tax credit depending on what the family income is, which could greatly benefit some families where the employer contribution towards the spouse and dependents may not be very much and could end up being very costly for the employee to be able to put the spouse and dependents on the employer-sponsored plan.
Did This Rule Fix The Family Glitch?
This rule seeks to change the rules and redefine who they look at when determining a reasonable offer of coverage. Using my example, instead of looking to Mike and seeing whether he has an affordable offer of coverage from his employer as the employee, it extends and looks to the spouses and dependents, so if that employer’s contribution towards the spouse and dependents is more than 9.5% of their family income. Then Carol and the kids are no longer having that affordable coverage because, once again, we’re not looking at it as defined by the employee and what the employer is offering the employee.
Shifting The Definition:
Looking at the spouse and dependents. Suppose Carol and the kids of that employer’s contribution towards their coverage make it so that going on to the employer-sponsored plan would be more than 9.5% of their household income. In that case, they could now decide not to take that employer-sponsored coverage and instead go to the exchange and potentially get a premium tax credit based on their family income.