Navigating the Family Glitch Fix: Hurdles for Consumers with Employer-sponsored Coverage
With the 2023 Marketplace Open Enrollment now underway in all states, many are focused on the roll out of the so-called “family glitch” fix as one of the new changes to watch in this tenth Marketplace Open Enrollment. Some consumers with access to employer-sponsored family coverage with high premiums will for the first time be able to enroll in Marketplace plans with financial assistance (premium tax credits and cost sharing reductions) that might make this coverage more affordable to them than their employer-sponsor coverage. However, navigating Marketplace eligibility and enrollment requirements is complicated even without the new rules on the family glitch. This Issue Brief looks at some of the challenges consumers can expect to face in deciding whether to take advantage of the family glitch fix.
Affordability and Employer Coverage
Eligibility for premium tax credits in the Marketplace is based on a person’s household income and whether they have an offer of “affordable” employer-sponsored coverage (among other factors). However, for family members of working individuals, affordability until now was based solely on the cost of self-only coverage available to the worker; the added premium for family members was not considered. That interpretation, adopted in 2013, is sometimes called the “family glitch.” In 2022, the average annual premium for employer-sponsored family health insurance is $22,463, while the average cost of self-only coverage is $7,911. Under the “family glitch”, if, for example, an employer had paid the entire premium for workers’ self-only coverage but contributed nothing toward the added cost of enrolling family members, the workers’ family members would nonetheless have been considered to have an affordable offer of employer-sponsored coverage, preventing them from getting financial assistance for Marketplace coverage.
Under new federal regulations published this fall, the worker’s required premium contributions for self-only coverage and for family coverage will be compared to the affordability threshold of 9.12% of household income. If the cost of self-only coverage is affordable, but the cost for family coverage is not, the worker will not be eligible for Marketplace financial assistance, but her family members can apply for this assistance. If employers offer a choice of plans, the lowest cost option with an actuarial value of at least 60% (the ACA “minimum value” standard) is used to evaluate affordability. (An actuarial value of 60% means the plan covers 60% of the cost of covered benefits on average for a typical group of enrollees, with the remainder being paid by patients through deductibles, copays, and coinsurance.)
Individuals determined eligible for Marketplace premium tax credits can also apply for cost sharing reductions if they enroll in a Silver plan and generally have a household income between 100 and 250 percent of the poverty level (between $23,030 and $57,575 for a household of three for 2023). Cost sharing reductions will lower a consumer’s out-of-pocket costs such as deductibles, copayments or coinsurance. The amount of the cost sharing reduction is determined on a sliding scale based on income. Those in cost sharing reduction plans will also have a lower annual out-of-pocket limit than the maximum amount allowed under ACA rules ($9,100 individual and $18,200 family for 2023).
KFF estimated that more than 5.1 million people fell in the ACA family glitch. KFF also estimates that 85% of these people (4.4 million) are currently enrolled through employer-sponsored insurance and are likely spending more for coverage than individuals with similar incomes would pay in premiums for subsidized Marketplace coverage. Consumers affected by the family glitch could be spending on average 15.8% of their income on their employer-based coverage according to one study. By contrast, the ACA affordability threshold for employer coverage in 2023 is 9.12% of income—an individual spending more than 9.12% of their income in premium contributions for her employer coverage is considered to have unaffordable coverage and is eligible for Marketplace subsidies.
Implementing the Family Glitch Fix
Now that the final regulation has been changed and the employee contribution toward family coverage is taken into account to determine affordability, what can consumers expect as they consider enrolling in a Marketplace Plan with financial assistance?
Consumers need information from their employer
One stumbling block for some employees will be the need to seek specific information from their employer before they can even evaluate whether it makes sense to enroll their families in Marketplace coverage with financial assistance. There is no requirement for an employer to provide this information to their employees, putting the onus on employees to try to gather it. To assist consumers in collecting some of this information, the federal exchange has updated its “Employer Coverage Tool,” which employees can take to their employer and request them to provide information about coverage eligibility, cost and minimum value. Consumers can use this tool to complete their Marketplace application. (Table 1)
|Table 1: Key Information Needed from Employer to Implement Glitch Fix|
|Information Needed||Why Needed?||Where can consumer get it?|
|Do employer-sponsored health plan options meet the test of “minimum value”||The ACA affordability test is only applied to employer plans that offer “minimum value,” meaning they have an actuarial value of at least 60% and provide substantial coverage for hospitalization and physician services||Consumers can ask their employer for this information. Alternatively, the Summary of Benefits and Covered (SBC) for the relevant plan option, must indicate whether it meets the minimum value threshold|
|What is the employee’s premium contribution (for self-only and for family coverage) for the lowest cost plan option that meets minimum value||This information is needed to determine whether a worker would have to pay more than the affordability threshold —9.12% of household income for 2023—for family coverage||The employer is the only source for this information. Many firms post the required employee contribution for all plan options during the employer’s open enrollment period. Other employers might not provide this information automatically, requiring the employee to ask for it|
|Will the employer-sponsored plan allow an employee to revoke coverage for their family mid-year in order to enroll the family in a Marketplace plan||Employees and/or family members enrolled in employer coverage will need to disenroll in order to enroll in Marketplace coverage for 2023||Each employer plan sponsor decides whether they will allow employees to revoke coverage. Consumers will need to find out what rules their employer uses. If the employer does not allow disenrollment, the family members cannot access financial assistance for Marketplace coverage|
IRS rules generally require employer-plan participants to select their coverage option before the beginning of the plan year. After that, employers are only required to permit mid-year changes following specific qualifying events. This can make it difficult to coordinate Marketplace enrollment with employer coverage disenrollment. For instance, an employer may have a plan year that does not begin in January (a non-calendar year plan), in which case Marketplace open enrollment would not coincide with the employer’s open enrollment. New and existing IRS guidance give employers the choice (whether they have a calendar year or non-calendar year plan)1 to allow the employee or household members to revoke their employer coverage and disenroll mid-year if, due to the family glitch fix, they are newly eligible for Marketplace financial assistance. Employers would need to amend their health plans to allow this disenrollment.
Many employers might not know that they must take action to allow employees to revoke coverage in order to take advantage of the glitch fix for their families. While employers do not have to allow this revocation, in most circumstances it would not adversely affect the employer. Allowing a spouse and a dependent to enroll in subsidized Marketplace coverage, for instance, does not cause an employer to violate the ACA’s employer mandate. Some employers may find cost savings in allowing these family members to disenroll since they are no longer covering these family members.
Consumers have complex choices to evaluate
Even if a consumer can get the information that they need in a timely manner, a more affordable premium for Marketplace coverage is only one item to consider in deciding to enroll:
- “Split” families. The glitch fix does not affect the affordability rule for the worker, only for the worker’s household members. If employer coverage is affordable for the employee but not family members, the employee might still stay in her employer coverage, while her dependents enroll in a Marketplace plan. This “split” family scenario means the family will have two plans, with separate (and likely different) deductibles and out-of-pocket limits and different provider networks. Also, an employee could decide to enroll along with her family in Marketplace coverage. However, because the employee would not be eligible for premium tax credits, her share of the family premium would not be subsidized. In addition, if her family would otherwise be eligible for cost sharing reductions, the family members would have to enroll in a separate Silver marketplace plan from the employee under existing cost sharing reduction rules.
- Networks and cost sharing.
- Differences in plan provider networks. The breadth of provider networks for Marketplace coverage might not be as robust as those in a typical employer plan. Consumers will need to investigate whether they can still see their existing providers in their new Marketplace plan.
- Differences in cost-sharing: Those not eligible for cost sharing reductions may also find higher deductibles and out-of-pocket maximums then they had in their employer coverage. For example, the average per-person deductible in job-based plans in 2022 was $1,763, compared to $4,753 under the average Marketplace Silver plan that year.
Considerations going forward
CMS has already ramped up outreach to relevant stakeholders to provide training on the family glitch fix. Time will tell whether more is needed to assure that the family glitch fix is implemented so that affected individuals can access this benefit. Easier ways to access information about employer cost and coverage may be one area to evaluate to alleviate the current complexity. As policymakers evaluate how best to make affordable coverage more accessible in our fragmented health coverage system, implementation of the family glitch is one clear area where trained assistance is clearly important to help consumers.
Even for some calendar-year employer plans, if the employer’s open enrollment period does not align with the Marketplace open enrollment period or an employee or employer did not take action to revoke coverage prior to January 1, 2023, consumers still might need permission to disenroll in 2023 outside of their employer plan’s open enrollment period. IRS Notice 2022-41 released in October 2022 only addressed non-calendar year plans, but in early November 2022 the IRS corrected the Notice to include calendar year plans as well.