How the Proposed Fix to the ACA 'Family Glitch' Will Impact Your Budget

A record 31 million people in the United States now have health coverage as a direct result of the Affordable Care Act. In fact, there's been reductions in uninsured rates in every state in the country since the law took effect in 2010, according to the U.S. Department of Health & Human Services and people insured through ACA marketplaces have reached historic levels.

But even amid such record breaking progress, there are still millions of people being left behind as a result of a gap in the law that has come to be known as the 'family glitch.' The so-called glitch or loophole has prevented about 5 million people from qualifying for subsidized health plans available through the ACA–even in cases when those individuals are unable to find affordable coverage through private providers elsewhere.

The good news, however, is that the Biden administration has set its sights on fixing this loophole, a move that will have far reaching ramifications. By some accounts, the rule change the administration is proposing would result in the largest expansion of ACA coverage since the law was passed more than a decade ago.

"This fix to the ACA to eliminate what's been known as the family glitch is a very big deal," Gerald Kominski, Ph.D., a senior fellow at the UCLA Center for Health Policy Research and professor of public health, told Health. "Last year, the Kaiser Family Foundation published a study estimating that 5.14 million people are currently affected by the family glitch...This new rule means they would be eligible for ACA subsidies that would make their insurance more affordable or allow them to purchase insurance if they are currently uninsured."

Here's a closer look at the changes being made by the Biden administration and how they will impact ACA applications and health insurance affordability in the years to come.

What Specifically Is Changing and Why?

As it stands now, individuals who do not have access to what ACA law considers 'affordable' health insurance through their employer can seek to purchase insurance via ACA health insurance marketplaces around the country and, when doing so, receive subsidies that help cover the cost of the insurance policy. Under the ACA, individuals can qualify for subsidized health insurance if the cost of their employer-based coverage rises above 9.83% of their household income.

However–and here's where the much-publicized glitch comes in–as currently written, the regulations define employer-based health insurance as affordable if the coverage solely for the employee is affordable, according to a White House fact sheet.

But what if family members or dependents also need to be added to an employee's work-based health insurance plan? The out-of-pocket cost of the coverage goes up significantly for the employee. As currently written, the ACA does not recognize these additional costs for family members or dependents when calculating affordability and eligibility for ACA coverage and subsidies. Instead, the affordability threshold of household income is based solely on the cost of the employee's self-only coverage, and does not factor in premiums required to cover any family members or dependents.

"For family members of an employee offered health coverage through an employer, the cost of that family coverage can sometimes be very expensive and make health insurance out of reach," adds the White House fact sheet. "The family glitch...has made it impossible for many families to use the premium tax credit to purchase an affordable, high-quality Marketplace plan."

A report from the Kaiser Family Foundation (KFF) puts it in even more black and white terms: "An employee whose contribution for self-only coverage is less than 9.83% of household income is deemed to have an affordable offer, which means that the employee and his or her family members are ineligible for financial assistance on the Marketplace, even if the cost of adding dependents to the employer-sponsored plan would far exceed 9.83% of the family's income."

As part of the proposed fix, the Treasury Department and the Internal Revenue Service are working to eliminate the family glitch, the White House fact sheet explained. And as a result, family members of workers who are offered affordable self-only coverage but unaffordable family coverage may soon qualify for premium tax credits to buy ACA coverage.

"Starting next year, working families in America will get the help they need to afford full family coverage, everyone in the family," the president said when announcing the change. "As a result, families will be saving hundreds of dollars a month."

Ramifications of the Proposed Fix

The new rule is most likely to help lower-income families. If the proposal is finalized, an estimated 1 million Americans would have their coverage become more affordable, and about 200,000 uninsured people would gain access to coverage, according to the White House. What's more, the change would also save hundreds of thousands of families several hundred dollars every month due to lower premiums.

"We did an analysis of this policy back in May 2021 and found that changing the family glitch would help many families financially," Jessica Banthin, a senior fellow in the Health Policy Center at the Urban Institute, a non-profit research organization, told Health. "Families that switch from employer-sponsored insurance would save an average of $400 per person in premiums a year. It would be an even bigger savings for families with incomes below 200% of the federal poverty level. These families would potentially save $580 per person a year."

The Kaiser Family Foundation's research shows that a majority of those who would benefit from the rule change and the broadened subsidies and coverage are children, and among adults, women are more likely to fall into the glitch than men.

Importantly, the Kaiser research also points out that the majority of people who fall into the glitch—some 4.4 million–are currently accessing health insurance through their employers and are likely spending far more for that coverage than they would through the Marketplace, were they eligible.

"One study estimated that those who fall into the family glitch are spending on average 15.8% of their incomes on employer-based coverage," states the Kaiser Family Foundation report.

The remaining individuals who stand to be impacted include about 315,000 people who have obtained unsubsidized individual market coverage and 451,000 who do not have any health insurance coverage at all.

When Does the Proposed Fix Become Reality?

The change proposed by the Biden administration is scheduled to take effect in January 2023. Before that happens it will need to go through the rule-making process, which includes a 60-day public comment period that's now taking place, according to The Commonwealth Fund. Additionally, the IRS is scheduled to hold a public hearing on Biden's proposal on June 27.

If the IRS finalizes the change, the family glitch would be eliminated and the metric for health insurance affordability revised. That means the determination regarding whether a family's employer-sponsored health insurance is actually affordable would be based on the cost to cover the employee and their family members or dependents, and no longer would be based on the cost for the employee alone.