Some working families are being locked out of lower cost health insurance options due to a quirk in the Affordable Care Act (ACA) known as the “Family Glitch.” This Family Glitch hinges on the definition of “affordable” employer coverage. Employer coverage is considered affordable if the cost to cover the employee only is less than a specified percentage of the employee’s annual household income (9.66% in 2016) – even if the cost to cover the entire family is much higher, as is typical. Families with access to employer coverage that meets this definition of affordable are prohibited from receiving tax credits to lower the cost of coverage purchased through a health insurance marketplace under the Affordable Care Act. Impacted families are left either paying for relatively expensive health insurance to cover the entire family, or using a patchwork of available options that may still leave certain family members without coverage.
This ACA Spotlight uses national data to compare coverage options and costs for families impacted by the Family Glitch. For affected families, the cost of their employer family coverage is compared against the cost of subsidized coverage purchased through a health insurance marketplace. Additional information is provided regarding family members who qualify for Medicaid or CHIP. See the Methodology section for more information on the data used.
The Affordable Care Act (ACA) includes a set of insurance affordability programs that lower the cost of health coverage for uninsured individuals and families. One of these programs – the premium tax credit – is designed to help individuals and families with incomes above Medicaid and CHIP eligibility thresholds and between 100% and 400% of the federal poverty level.
Consumers are only eligible for the premium tax credit if they do not have other adequate and affordable health coverage options available, whether through public health coverage programs like Medicaid or CHIP, or through an employer. Internal Revenue Service (IRS) regulations under the ACA define employer coverage as affordable if the employee’s contribution to the annual premium costs for employer self-only coverage is 9.66% or less of annual household income. Coverage that meets this test is considered affordable for the entire family, even if the employee’s contribution to the annual premium costs for employer family coverage is more than 9.66% of the family’s annual household income.
Employer coverage is typically more expensive for a family than a single employee. In 2014, an employee’s annual contribution for employer coverage averaged $1,234 for self-only coverage and $4,518 for family coverage. Under the Family Glitch, this average employer coverage would be considered affordable for a family with an annual income above $12,774 in 2016. Yet at that income level, the family would pay 35% of their income to enroll their entire family in the employer coverage.
Estimates of the number of people impacted by the Family Glitch range from two to four million. Children affected by the Family Glitch are often eligible for Medicaid or CHIP, but adults often are not. Those who are ineligible for public coverage face the choice of either paying more than 9.66% of their annual household income for employer family coverage or unsubsidized marketplace coverage (marketplace coverage without a premium tax credit), or using multiple available options that sometimes still leave certain family members uninsured. For example, a three-person family with two adults and one child that is subject to the Family Glitch might choose to enroll the working adult in self-only coverage through his or her employer, enroll the child in CHIP if eligible, and have the other adult remain uninsured. If both the lowest cost bronze-level marketplace coverage or employer self-only coverage available to that adult would cost more than 8.13% of the family’s annual household income (in 2016), then he or she not have to pay a penalty for failing to enroll in coverage.
The infographics in this ACA Spotlight illustrate how the definition of affordable employer coverage impacts working families’ coverage options and costs. Spotlight users provide family characteristics (annual household income, state of residence, and family members’ ages) and either specify what the family would pay for employer coverage, or use average employer coverage costs for the state. Based on these parameters, the Spotlight will calculate whether the family is subject to the Family Glitch and/or eligible for Medicaid or CHIP.
If the family is subject to the Family Glitch, the Spotlight compares the family’s most affordable coverage options if the definition of affordable employer coverage is based on employer self-only coverage versus employer family coverage. If the definition is based on employer self-only coverage, the Spotlight assumes the family enrolls in employer family coverage, as it is the most affordable coverage option available for the family when in the Family Glitch. If the definition is instead based on employer family coverage, the Spotlight assumes the family enrolls in marketplace coverage subsidized through premium tax credits, as it would be the most affordable coverage option available for the family in that scenario.
Social Interest Solutions (SIS) produced the data and infographics using the MAGI Cloud platform and the latest available Medical Expenditure Panel Survey (MEPS) data (from 2014) on the average premium costs for employer self-only coverage and employer family coverage. The MAGI Cloud platform uses this MEPS data plus additional family data entered by the user to calculate the Family Glitch’s impact on the family. The MAGI Cloud platform includes a comprehensive rules engine that can generate ACA eligibility results across all states and across the full spectrum of health insurance options, including Medicaid, CHIP, and Qualified Health Plans (QHPs) with and without premium tax credits and cost-sharing reduction subsidies. To learn more about the MAGI Cloud platform, click here.
To determine if a family is affected by the Family Glitch, the MAGI Cloud platform divides the cost of employer self-only coverage by the annual household income and compares the outcome to the 9.66% affordability threshold for 2016. (Please note that for clarity, this ACA Spotlight assumes that a family is offered coverage through only one employer.) With the Family Glitch, the MAGI Cloud considers employer coverage affordable if the employee’s share of the premium for employer self-only coverage costs less than 9.66% of the family’s annual household income, as is the standard under current law. With a definition of affordable based on the cost of employer family coverage rather than the cost of employer self-only coverage, the MAGI Cloud considers employer coverage affordable if the employee’s contribution to annual premium costs for employer family coverage costs less than 9.66% of the family’s annual household income.
If the MAGI Cloud platform determines a family is affected by the Family Glitch, it provides a bar graph that compares the family’s most affordable coverage options and costs available under the Family Glitch versus the most affordable coverage options and costs that would be available with a definition of affordable based on the cost of employer family coverage. With the Family Glitch, the most affordable coverage option is employer family coverage that costs more than 9.66% of the family’s annual household income. With a definition of affordable based on employer family coverage, the most affordable coverage option is marketplace coverage subsidized through premium tax credits. If anyone in a family affected by the Family Glitch is eligible for Medicaid or CHIP, the infographics also present the number of family members that are eligible.
- First Focus
- Georgetown University Health Policy Institute’s Center for Children and Families
- Health Reform GPS
- Kaiser Family Foundation
- Medical Expenditure Panel Survey, U.S. Department of Health and Human Services
- U.S. Government Accountability Office