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Premium Assistance and the Family Glitch

Premium Assistance and the Family Glitch


Health Insurance papers with Pen

Premium Assistance and the Family Glitch

The Affordable Care Act (ACA) expands coverage to millions of Americans who do not currently have insurance or cannot afford it; however, not every family whose income entitles them to premium assistance will be able to get it. Critics refer to this as the “family glitch”.

Under the ACA, individuals who do not have health insurance may be eligible for premium assistance from the Federal Government. To qualify, their income must be between 133% (in some cases 100%) and 400% of the Federal Poverty Level (FPL). They also cannot be eligible for employer sponsored health insurance. However, as with any rule, there are exceptions. If the employer’s plan is “unaffordable” or does not provide “minimum value”, the employee and his or her dependents may be entitled to premium assistance.

To be affordable, the employee’s contribution for “self-only” coverage cannot be more than 9.5% of their family income. For a plan to provide minimum value, it must pay at least 60% of allowable medical costs. If the plan is either unaffordable or does not provide minimum value, an employee is generally eligible for premium assistance if their income is below 400% of the FPL.

The glitch occurs when coverage is affordable for the employee but not for the family. Many employer plans pay less toward the cost of family coverage than they do toward employee only coverage. In some cases, the employer contributes nothing toward the cost of family coverage.

A 2012 Kaiser Family Foundation survey found employees on average pay 18% of the overall premium for employer sponsored coverage. For the family, the contribution is 28%. Employees in smaller firms pay less for single coverage than do those in larger firms; however, the reverse is the case when it comes to families. This creates a situation where some families cannot afford to pay for employer sponsored coverage; however, if the employee contribution for “self-only” coverage is less than 9.5% of household income, family members are not eligible for premium assistance. This applies even if the employee has to contribute more than 9.5% for family coverage. The Kaiser Family Foundation estimates this rule will negatively impact 3.9 million non-working dependents. For this group, the average family contribution represents 14% of their income. Ironically, if these family members were not eligible for employer sponsored coverage, they would qualify for premium assistance

The IRS takes a different position from the ACA when it comes to the penalty criteria for not having insurance. If the employee contribution toward family coverage exceeds 8% of household income, the spouse and dependent children of the employee are exempt from the penalty. Of course, this is little consolation for those who want insurance but can’t afford it.

So where do we go from here? At this point, it seems the only way to fix the situation is through legislation. Given the climate in Washington, this may not be possible. As a result, these families are stuck in limbo. They are eligible for employer sponsored insurance. Thus, they are not eligible for premium assistance even though they may not be able to pay for their health coverage.