by: Todd Larner
What Is The Family Glitch?
The “Family Glitch” refers to one of the compromises that was made for employer-based coverage so that the Affordable Care Act (ACA/Obamacare) could be passed into law. Affordability is based on the lowest self-only plan that the employer offers … meaning a plan covering only the employee and not any of their dependents (spouse/children).
What Is Affordability?
Basically, for an employer-based health insurance plan to be considered affordable it must cost less than 9.83% (2021 percentage) of the employees household income. Household income includes the income of every household member who is required to file a tax return. So, if you have a family consisting of two parents (both of whom work making a combined $55,000/annually) and two children, the lowest cost employer-based plan would need to cost the employee only $450.54/month (with employer contribution) or less to be considered affordable.
- Combined household income of parents: $55,000
- $55,000 multiplied by 9.83% = $5406.50
- $5406.50 divided by twelve months = $450.54
How Employer Sponsored Coverage Impacts Families
So, what does this mean to your employees? Let’s say our four member family mentioned above decides to get health insurance through the one parents employer. The employer offers to pay 60% of the premium cost for their employee. The employer offers health insurance coverage for the employee’s dependents but does not contribute anything to this cost (the dependents must pay full cost). The employee and his dependents all choose the lowest cost plan offered by the employer (most likely a bronze plan). Even though their annual cost for employer-provided healthcare is $14,400/year, or a whopping $26% of household income, their health insurance is considered affordable because the employee is paying less than 9.83% of household income. AND, the dependents can not decline the employer coverage and enter the state healthcare exchange and receive an APTC credit because they had an offer of employer-based coverage that is considered affordable (employee-only less than 9.83% of household income).
- Employee cost annually: $3600/year ($300/month) well within the $9.83% employee-only affordability test
- Employee Spouse cost annually: $6000/year ($500/month ~ no employer contribution)
- Employees Children cost annually: $4800/year ($200/month x 2 = $400/month)
- Total Family cost annually: $14,400/year ($1200/monthly)
What Can Be Done To Help Employees?
Until such time as the laws pertaining to the “family glitch” are changed employers might consider whether it is in their employees best interests to offer healthcare to employees dependents if they aren’t offering to contribute to it. Why? Because without the offer of dependent coverage the employee’s dependents would be able to enter the state healthcare exchange and receive an APTC credit with the dependent children possibly being eligible for Medicaid (Medi-CAL). *NOTE: If you wanted to change whether or not you offer benefits to dependents and at what percentage these and, other changes, to the group master contract can typically only be made at your renewal date.
** The above is for illustrative purposes only and does not reflect an actual scenario. Have questions? We’re Here To Help! Contact us at team@thebenefits.guru or call us at 818-253-1736 **