In 2014, a woman wrote to Consumer Reports with a problem. She said her husband was able to get health insurance at his job for $130 per month, which was about 4% of their monthly income. However, adding her to his plan would have raised the cost to $415 per month — more than 12% of their income. Was there anything they could do, she asked?
Sadly, the answer was no. In theory, the Affordable Care Act (ACA) — better known as Obamacare — guarantees all workers access to a health care plan they can afford. However, according to how the IRS interprets the law, this applies to workers only, not their families. Even if the cheapest available plan is way beyond a family’s means, they can’t get a subsidy.
This problem, commonly known as the “family glitch,” has left millions of Americans with no source of affordable health insurance. If you’re one of them, there are no good solutions for you and your family. Until Congress fixes the law, the best you can do is rely on these stopgap measures to provide some sort of coverage for your dependents.
How the Family Glitch Works
The ACA requires employers with at least 50 full-time employees to provide their workers with a health plan that’s affordable for them. The current definition of “affordable,” according to Healthcare.gov, is no more than 9.83% of the employee’s monthly total household income.
For instance, a worker with a monthly income of $4,000 can’t be charged more than $393.20 per month for a health plan. If the total monthly premium is higher than that, the employer must pick up the difference.
However, this limit is for “self-only” coverage — that is, a plan covering only the employee, with no dependents. Employers have to offer coverage for the children of employees, but they aren’t required to pay anything toward the cost of that coverage.
Suppose that same worker has a spouse and children. The cost of covering the entire family comes to $1,000 a month — a whopping 25% of their household income. By law, this is still considered “affordable” as long as the employee’s own share comes to less than $393.20.
The Family Glitch and ACA Subsidies
It might seem like this is no problem because the employee could just buy coverage for their spouse and children through the health insurance marketplace at Healthcare.gov. If they can’t find a plan in the marketplace for less than 9.83% of their household income, they should get a subsidy to pick up the difference — right?
Unfortunately, no. Under the ACA, you can’t qualify for a subsidy if you have access to an “affordable” plan through an employer — based on employee-only coverage. No matter what the cost of family coverage is, if the employee’s own coverage is under 9.83% of their monthly income, no one in the family can get a subsidy.
Oddly enough, although the law defines these family members’ care as “affordable” as far as subsidies are concerned, it doesn’t define it as affordable with regard to the individual mandate. This requirement in the original version of the law penalized people who did not have health insurance.
Under this rule, if a spouse and children couldn’t get a plan for less than 8.05% of their household income, even if the employed parent could, they qualified for a hardship exemption. Families who didn’t squeeze their budgets to buy one of the high-cost plans available to them would pay no penalty for going without insurance.
However, this wasn’t much help for families who couldn’t afford care. For most of them, an affordable health plan would provide much more value than the money they saved by going without insurance. And since the The Tax Cuts and Jobs Act of 2017 eliminated all penalties for being uninsured, the hardship exemption no longer applies at all.
How the Family Glitch Happened
It seems a bit bizarre to define affordable coverage based on “self-only” coverage rather than the actual price an employee pays for their entire family. In fact, it’s not at all clear from the text of the ACA itself that this is the correct way to read it.
The problem is that there are two different portions of the law involved. Section 36B, which deals with subsidies, says that an employer plan is affordable as long as the employee’s “required contribution” toward the premium doesn’t exceed 9.5% of income. (This percentage has risen to 9.83% for the year 2021.)
However, the term “required contribution” also appears in Section 5000A, which deals with the individual mandate. It says that employees pay no penalty for failing to purchase coverage if they’d have to pay more than 8% of their income (increased to 8.05% in 2018) for a self-only policy.
Clearly, these two portions of the law are talking about two different things. There’s no particular reason to assume that just because the cost threshold to avoid a penalty is calculated based on a self-only policy, the cost threshold for subsidies needs to be calculated the same way.
However, when the IRS published its final rule on how to interpret the ACA in the Federal Register in 2013, it declared that the law, as written, defined affordability based on “self-only” policies. Changing that definition would require a new regulation.
Calling this problem a glitch makes it sound like a mistake. In reality, both the IRS and the Government Accountability Office (GAO) considered the impact of this decision very carefully. They knew that if they defined affordable policies based on the cost of family coverage, the government would have to pay out subsidies for more people.
Thus, this so-called “glitch” was actually a deliberate move by the government. It opted to keep costs down by depriving millions of people of affordable care.
Who’s Affected by the Family Glitch
If you haven’t heard of the Obamacare family glitch before, it’s probably because it doesn’t apply to most Americans. For instance, it doesn’t affect you if:
- You’re unmarried and have no dependents.
- Either you or your spouse can get affordable coverage for your whole family through an employer.
- You’re married with no kids, and you and your spouse both have coverage from your employers.
- You’re married with no kids, and your workplace doesn’t offer coverage for your spouse. In this case, your spouse can qualify for a subsidized plan on the health insurance marketplace.
- Both you and your spouse are self-employed or work for small companies — those with fewer than 50 employees — that don’t provide a health plan. In this case, both of you can qualify for health care subsidies.
- Your family income is low enough to allow you or your dependents to qualify for Medicaid in your state.
These six cases cover the majority of working-age Americans. However, according to Kaiser Health News (KHN), as many as 6 million Americans slip through the cracks.
Lower-income workers are the most likely to be hit by the glitch for two reasons. First, the lower your income, the bigger the percentage of it you spend on health care if you don’t qualify for subsidies.
Second, low-income workers are less likely to have generous health care plans available at work. They pay higher monthly premiums, and their employers contribute less to the cost of their care.
In 2019, KHN reported that companies with few low-wage workers cover, on average, 60% of their workers’ family health care costs. But firms with many low-wage workers cover only 33% of family health care costs. Family coverage actually costs more at the companies where workers can afford it the least.
Proposals to Fix the Family Glitch
Over the years, several politicians and policy experts have suggested ways of closing the loophole that created the Obamacare family glitch. Their proposals included:
The Family Coverage Act
In 2014, former Senator Al Franken proposed the Family Coverage Act. It would have redefined affordability under the ACA so that it was no longer based on self-only coverage. However, this bill died in committee, and no one has reintroduced it.
The Clinton Proposal
As a candidate for president, Hillary Clinton said she intended to fix the family glitch, as reported by The Hill in June of 2015. However, she lost the election to Donald Trump, who was more interested in scrapping Obamacare completely than repairing it.
Repeal and Replace
Ever since the ACA first passed, Republicans in Congress have been attempting to repeal it and replace it with a new health care plan. It’s not clear what this replacement would look like or whether it would provide affordable care to Americans who don’t have coverage now.
In any case, Congress has so far failed to pass a repeal bill. The only portion of the ACA it managed to eliminate in its 2017 session was the individual mandate, leaving the family glitch untouched. With Democrats regaining control of Congress after the 2020 elections, a wholesale repeal of the ACA is especially unlikely for the time being.
The Two Rand Proposals
A 2015 report by the Rand Corporation proposed two ways of correcting the family glitch. The first option was called the “entire family” scenario. It would redefine affordability as no more than 9.5% of household income for family coverage. The authors estimated this plan would reduce the number of uninsured Americans by roughly 1.5 million at a cost to the government of $8.9 billion.
The Rand paper’s second plan, called the “dependents-only scenario,” was less dramatic. It made workers’ family members, but not the workers themselves, eligible for subsidies if their insurance costs came to more than 9.5% of their household income.
The authors calculated that this plan would insure an additional 0.7 million Americans, as well as making insurance considerably more affordable for those who are now overpaying. However, it would cost the government $3.9 billion.
Working Around the Family Glitch
As the two Rand proposals show, fixing the family glitch won’t be cheap. Even the less-expensive proposal would require close to $4 billion in additional funding. Given the cost, as well as the bitterly divided political climate in Washington, it’s unlikely Congress will agree on a solution to this problem any time soon.
For now, families caught by the family glitch have to scramble to insure themselves as best they can without subsidies. Here are your best options for finding coverage that’s at least somewhat affordable.
1. Enroll Your Kids in CHIP
If you have kids and can’t get affordable coverage for them through your employer, there’s a good chance they’ll qualify for help from the Children’s Health Insurance Program (CHIP). This program provides coverage for children whose parents can’t find affordable coverage for them at work but aren’t poor enough to qualify for Medicaid.
CHIP covers routine care such as checkups, immunizations, and dental and vision care, as well as doctor visits, prescriptions, lab work, X-rays, emergency services, and inpatient and outpatient hospital care. Routine doctor and dentist visits are free, but there can be a copayment for other services.
In some states, there’s also a monthly premium for the program. However, your total costs for CHIP can’t be more than 5% of your household income.
Each state sets its own rules about who qualifies for CHIP. Some states fold the program into Medicaid, while others offer standalone CHIP coverage for families who don’t qualify for Medicaid. Income cutoffs for these standalone programs range from 200% to 400% of the federal poverty level, according to Medicaid.gov.
In addition to income limits, states can consider whether your children have access to an affordable health plan through your employer. In Utah, for example, your kids can’t qualify for CHIP if you could enroll them in an employer-sponsored health plan for less than 5% of your family income.
To learn what CHIP covers in your state and see if you qualify, visit InsureKidsNow.gov.
2. Use the Health Insurance Marketplace
CHIP can’t help everyone affected by the family glitch. For instance, you could be over the income limit for CHIP but still unable to afford health care for your kids. And because the program only covers kids, it’s no help to spouses who can’t get affordable coverage.
In this situation, your best option could be to look for the most affordable plan you can find in the health insurance marketplace at Healthcare.gov. Even if your employer offers health coverage for your spouse and children, they can choose to buy a marketplace plan if it’s cheaper. They just can’t get a subsidy to help them pay for it.
Unfortunately, there’s no guarantee that you can save money this way. For instance, the woman who wrote to Consumer Reports about her health coverage said adding her to her husband’s workplace health plan would cost $285 per month to join her husband’s workplace health plan. She couldn’t find a marketplace plan for less than $299 per month. However, it can’t hurt to check and see what all your options are.
3. Get a Short-Term Health Insurance Plan
Health plans offered by employers or sold on the health insurance marketplace must provide coverage for 10 essential services. These include preventive care, lab tests, maternity care, and mental health. Insurers can’t set any dollar cap on how much they’ll pay for these services in one year or over your lifetime.
Short-term health plans through eHealthInsurance, which are sold as a stopgap to get you through a temporary lapse in coverage, don’t have to meet this standard. As a result, these bare-bones plans are often much cheaper than a full health plan.
The rules for short-term plans have changed several times in the past few years. Before 2017, the federal government defined short-term health insurance as plans lasting less than one year, although states could set shorter time limits.
In 2017, the Obama administration barred companies from selling short-term care plans with a duration of longer than 90 days. However, in August 2018, the Trump administration reversed this decision. Under its new rules, companies can issue short-term plans with an initial duration of up to 364 days and renew them for up to three years.
The biggest benefit of short-term plans is their low cost. According to HealthInsurance.org, a family of four living in Wyoming could buy short-term coverage for just over $200 per month. The cheapest plan available in the marketplace would cost over $2,000 per month for the four of them.
Unfortunately, these ultra-cheap plans don’t provide much coverage. For instance, they typically don’t cover:
- Pre-existing conditions — and if you develop a new chronic condition while you’re on a short-term plan, you probably won’t be able to renew it
- Routine office visits
- Maternity care
- Preventive care
- Mental health
- Prescription drugs, unless they’re administered in the hospital
Also, the deductibles for these plans are often extraordinarily high. Louise Norris, a writer and health insurance broker interviewed by CNBC, says many plans require patients to pay for the first $10,000 or more out of pocket before their insurance kicks in. That’s a lot more than most people would pay for a year’s worth of premiums for an ACA-approved plan.
Because of these limitations, some states still limit the use of short-term health plans to three or six months. In 11 states, this type of plan simply isn’t available. However, if you absolutely can’t afford an ACA-compliant plan, a short-term plan that provides only six months of minimal coverage is better than no insurance at all.
4. Look for a New Job
The most extreme approach for families who can’t get affordable health insurance is for one or both spouses to switch jobs. If your current job doesn’t offer affordable coverage for your family, perhaps either you or your spouse can find one that does.
If you only need coverage for your spouse, ironically, you could be better off switching to a new job that doesn’t cover spouses on its insurance plan at all. That way, your spouse will no longer be considered to have access to affordable coverage through your job.
However, HealthInsurance.org warns even in this case, that your spouse still might not qualify for a health insurance subsidy. That’s because the exchange compares the cost of coverage for your spouse alone to the income for your whole household. The money you pay toward your workplace plan doesn’t count as part of your health care cost.
Alternatively, if one spouse has workplace insurance and the other doesn’t, the uninsured spouse can look for a job that provides coverage. There are even some part-time jobs with health insurance. However, if the uninsured spouse is a stay-at-home parent, you must balance the value of affordable health care against the cost of day care with both parents working.
One final option is to quit your job entirely and become a freelancer. In that case, no one in your family will have access to an employer-based health plan, and you’ll all be eligible for subsidies.
Unfortunately, for many families facing the Obamacare family glitch, there are no good options. CHIP can provide care for kids in most cases, but spouses must choose between paying too much for a health plan, settling for a short-term plan with limited coverage, or finding a new job. The only real way to solve this problem is for Congress to change the wording of the law.
So, if the family glitch is hurting your family — or if you’re concerned about how it hurts others — start pestering your Congressional representatives about it. Call and write letters urging them to set aside their partisan bickering and do something to help the millions of Americans who can’t afford health insurance for their families. Don’t let up on them until they fix this problem that should never have existed in the first place.