The “Family Glitch Fix” Gives Families New Options to Purchase Quality, Affordable Health Coverage
At the beginning of 2023, a new rule issued by the IRS took effect, giving millions of families the opportunity to purchase affordable health insurance and make meaningful decisions about their health coverage. Thanks to the new rule, many families were able to take advantage of the change in time for the 2023 Open Enrollment Period (OEP), that saw a record-breaking number of 16.3 million people enroll in plans on the Affordable Care Act Marketplaces. Additionally, many families may benefit from a Special Enrollment Period (SEP), if their offer of employer-sponsored coverage changes outside of the annual Open Enrollment Period.
Under the ACA, people are not eligible for premium tax subsidies to purchase insurance in the Marketplace if their employer offers “affordable” health coverage. Employer plans are not considered affordable if an employee must contribute more than 9.5% of their income (adjusted for inflation) toward insurance premiums. This is known as the ACA’s “firewall” provision. The “family glitch” refers to the IRS’s 2013 interpretation of the firewall provision that based the affordability of a plan on the cost of employee-only coverage, rather than the cost for family coverage. In other words, this interpretation did not consider the additional premium costs for family-based coverage. If the coverage was affordable for the employee, other family members could not get financial assistance paying for marketplace coverage even if the employer’s family-coverage cost was unaffordable. An estimated 5 million people, primarily low-income families, were affected by the family glitch. The 2013 interpretation was heavily criticized by a broad range of stakeholders, including policymakers and advocates.
The IRS’ new rule revises the 2013 interpretation, and eliminates the family glitch by basing the affordability test for employee’s family members on the premium cost for family coverage, rather than employee-only coverage. This change will allow millions of family members, primarily low-income women and children, to receive federal financial assistance toward the cost of premiums and deductibles. Most importantly, the new rule will allow families meaningful choice of affordable, comprehensive health coverage options.
To learn more about this issue, check out this fact sheet from HHS.
