Fixing the ACA’s Family Glitch: What Business Owners and Employees Can Expect

The Affordable Care Act is a comprehensive healthcare reform measure enacted in March 2010. It is sometimes referred to as the ACA or “Obamacare”. According to the U.S. federal government, the ACA has three primary goals:

  • To make healthcare affordable for more people
  • To expand Medicaid coverage to all adults with certain income
  • To support innovative medical care delivery methods to lower the costs of healthcare

If you’ve heard of the ACA you may have heard about what is known as the ACA family glitch. It refers to the fact that affordability of the ACA didn’t include the cost to include family members on the health plan. It was solely based on the price for an individual employee.

According to the ACA at the time, an employee could apply for the ACA if they were not eligible for affordable healthcare through their employer. However, if an employee’s healthcare coverage was deemed affordable, the entire family would not be eligible for ACA healthcare coverage.

The U.S. federal government determined that affordable employment coverage was less than 9.61% of a family’s household income. At the time, if an employee could receive individual healthcare coverage through their coverage for less than 9.61%, it made the entire family ineligible for ACA coverage. Even if family coverage through the employee’s company was much higher than 9.61% of the household income.

This made it difficult for some families to obtain much-needed coverage. It meant that they either had to pay high costs, which could sometimes reach up to 25% of their household income. Families were forced to use employer-sponsored healthcare coverage or look elsewhere for options. This left many families in a financial bind.

A Glitch in the System

Records show that the Internal Revenue Service made provisions concerning the family glitch in 2013. It shows up in two sections of the law (36B and 5000A).

  • 36B – This section of the ACA states that an employer’s health care coverage can be deemed affordable if it doesn’t exceed 9.5% of income.
  • 5000A – This section makes it clear that the ACA only looks at what is deemed affordable in terms of individual coverage, not including family coverage.

Pleas were made to change these rules to include family coverage, but no action was taken. Some believe that there were concerns about whether employers would see it fit to increase the contributions required to enroll family members. This encouraged more people to apply for ACA coverage and drive up the costs of ACA subsidies. These are tax credits to make the costs of ACA health care insurance more affordable for individuals and families. In 2020, an estimated 11 million people who purchased health insurance on the Marketplace received subsidies through the ACA. The Marketplace is the enrollment center for medical insurance through the ACA. It’s estimated that the ACA family glitch impacted up to six million Americans.

Making an Effort for Change

In October 2022, the IRS released its new guidelines for families using the ACA. It went into effect in December 2022. There was a push from lawmakers to make sure measures were in place before the 2023 enrollment period. The new rule gets rid of the troublesome ACA glitch. Now affordability will be based on employer-sponsored coverage for family members of an employee.

With this change, more families will be eligible for premium subsidies through the ACA, giving more people access to affordable healthcare. One study estimates that up to 2.3 million people will now be eligible for ACA coverage.

A New Learning Curve for Everyone

With this new rule in place, employers may see more employees move from family coverage to individual coverage.

Now, employees will have to determine whether they should get rid of their employer-offered coverage or the ACA. The Employer Coverage Tool can help employees make a decision. 

It is a worksheet that allows employees to list cost, coverage, and eligibility information. Employees can use this sheet to ask their employer to provide this information. It will also help when filling out a Marketplace application.

According to the IRS, employees can get rid of their employer-offered insurance coverage in the middle of the year, if an employee is signing up for ACA coverage. However, there is one stipulation. The reason for dropping employer coverage must be based on the family glitch and newfound eligibility under the new rules for ACA coverage subsidies.

Experts believe that most employers won’t be negatively impacted by employees dropping their employer-offered coverage. Some employers may save money when more employees choose ACA coverage.

Alltrust Insurance: Making Federal Changes Easier for Your Business

Alltrust Insurance can be a key resource for your company. We’ll help you navigate offering employee benefits for your employees, including this new ACA rule that impacts employers and employees. Our goal is to assist your business in carefully and strategically offering benefits that will attract employees to apply and remain at your company. That’s one benefit of offering comprehensive employee benefits. We’re designed to be able to assist companies of any size. 

Our services don’t end there. Alltrust Insurance offers voluntary benefits including legal protection, pet insurance, accident insurance, critical illness insurance, and more. Other services available to our clients include executive benefits, underwriting services, cost management resources, and cyber services. Contact our team at Alltrust Insurance so we can begin working with you. We’re happy to answer any questions you may have.


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