What is the family glitch, and is it fixed?

The Affordable Care Act’s employer mandate requires applicable large employers (ALEs)—those with 50 or more full-time equivalent employees (FTEs)—to offer at least 95% of their full-time employees and their eligible dependents an affordable health insurance plan. This plan must provide minimum essential coverage (MEC) and minimum value. If not, they may be subject to costly penalties.

Before 2023, employers only used the cost of self-only employer-sponsored coverage and an employee’s income in their ACA affordability calculations. But, these testing limitations resulted in millions of U.S. families being unable to access affordable health coverage. To resolve this, the Biden Administration launched efforts to fix this problem known as the “family glitch.”

In this article, we’ll explain the family glitch, how many Americans it affected, and the federal government's rules to resolve the problem and increase healthcare access.

Takeaways from this blog post:

• The "family glitch" prevented eligible family members from receiving premium tax credits for an ACA marketplace plan if the employee's self-only coverage was affordable.
• The glitch affected about 5.1 million Americans, mainly middle- and low-income families, forcing them to choose between self-only coverage from their employer or an expensive family plan without marketplace subsidies.
• The IRS finalized new rules in 2022 to fix the glitch by using household income and the cost to cover the employee and their family members to determine affordability, providing financial assistance to more individuals.

What is the family glitch?

The so-called “family glitch” describes the IRS’s previous interpretation of the ACA’s affordability standards. Under the ACA’s firewall provision, individuals could only qualify for premium tax credits on the public health exchanges if their employer-sponsored coverage wasn’t considered affordable or didn’t meet the minimum value requirement.

Previously, affordability testing only used the full-time employee’s income and the cost of a self-only plan—not their total household income and the family plan cost. If calculations determined that the employee’s self-only coverage was affordable, their eligible family members (meaning their spouse and dependents) would be ineligible to receive premium tax credits for ACA health coverage. This issue is known as the "family glitch."

Premiums rise when family members join a plan. For example, the average annual premium for employer-sponsored health insurance in 2023 was $8,435 for self-only coverage¹. But, due to the family glitch, if an employee’s self-only coverage was affordable, their family members wouldn’t be eligible for premium subsidies on the individual market.

Therefore, they would either have to pay for unsubsidized family-based coverage on the individual market (which had an average annual premium of $13,824 in 2023) or choose the employee’s employer’s sponsored family coverage².

How many individuals did the family glitch affect?

According to KFF, the family glitch impacted about 5.1 million Americans, mainly low- and middle-wage workers^3. These individuals chose employer-sponsored self-only coverage because it was affordable. However, they couldn’t afford the higher premiums of Marketplace family coverage without subsidies.

The glitch also affected children who didn’t meet the eligibility requirements for public programs like Medicaid and the Children’s Health Insurance Program (CHIP)⁴. Medicare and CHIP eligibility varies by state, so the glitch may not have affected every individual the same way.

“As an insurance broker, I have seen many clients struggle with the family glitch,” said Vonda Copeland, Certified Professional Insurance Agent and owner of Copeland Insurance Agency. “For example, I had a client whose husband was offered affordable health insurance coverage through his job, so the family didn’t qualify for subsidies on the exchange. However, adding his wife and kids to his plan would have cost over $1,500 per month, which was out of their budget. They ended up having to choose between insurance for some or high premiums for all.”

Copeland also said that another client earned too much to qualify for Medicaid. But, they couldn’t afford an unsubsidized Marketplace plan. The family glitch forced the client to choose between healthcare, rent, and other essentials.

In the first quarter of 2023, there were 25.3 million uninsured people⁵. After resolving the family glitch issue, the Biden Administration expected almost one million middle- and low-income workers to gain health insurance or have more affordable coverage⁶.

Is the family glitch fixed?

In January 2021, President Biden issued Executive Order 14009 to strengthen Medicaid and the ACA. The Department of the Treasury and the IRS published proposed rules to change affordability in April 2022.

In October 2022, the IRS finalized special rules to fix the family glitch⁷. Instead of using the cost of employer-sponsored self-only coverage, the affordability calculations now use household income and the cost to cover the employee and their eligible family members. Eligible family members are only the employee’s spouse (if they jointly file their tax returns) and any claimed dependents for the current tax filing season year.

The IRS considers a health plan affordable in 2025 if employees don’t contribute more than 9.02% of their household income toward their entire premium. If an employee’s plan is unaffordable, they can decline it and purchase subsidized marketplace coverage if they qualify for tax credits.

Even if the employee accepts their employer’s plan, their family members can still decline it and opt for subsidized marketplace coverage.

Some employers provide multiple health plan options. In that case, they must test affordability based on the lowest-cost plan, even if an employee chooses a more expensive plan.

The IRS also requires employer plans to have 60% actuarial value and “substantially cover” physician and inpatient hospital services. Suppose an employer offers family coverage that doesn’t meet this minimum value rule. In that situation, the family may decline it and apply for tax credits to purchase subsidized marketplace coverage—even if the employer’s plan is affordable.

These federal rules don’t change the ACA’s employer mandate or affect how the IRS calculates premium tax subsidies. However, they allow more individuals and their families to enroll in comprehensive and affordable coverage.

What are the options for families who don’t qualify for premium tax credits?

The final rules may not give you access to more affordable healthcare, depending on your situation. If that’s the case, you may wonder what your options are now.

If you still don’t qualify for premium tax credits under the new special rules, you have the following options:

1. If you can afford coverage, you can keep your family on your employer’s health plan, paying the set monthly premium.
2. Since you can calculate affordability separately for employees and family members, you can choose your employer’s self-only coverage for yourself. Your eligible family members can buy subsidized marketplace coverage during the open enrollment period if they qualify for financial assistance based on household income.
   1. This option means you’ll have to navigate two premium payments and potentially two separate deductibles, provider networks, out-of-pocket limits, scope of benefits, and more.
3. During the open enrollment period, you can decline your employer-sponsored insurance and purchase unsubsidized marketplace coverage for your entire family.
4. You can choose your employer’s self-only coverage. Your family members can buy unsubsidized marketplace coverage during the open enrollment period.

While the new rules may be helpful for many families, others may not like their remaining coverage options. In this case, you can see if your employer would be willing to offer a health reimbursement arrangement (HRA).

HRAs allow employers to help their employees pay for their individual plan premiums and other out-of-pocket costs. Your employer simply sets a monthly allowance that you can use to spend on eligible healthcare items and services. Once you make an approved purchase, they reimburse you tax-free up to your allowance amount. An HRA gives employees more flexibility and freedom over their financial and medical decisions.

There are different types of HRAs. But the qualified small employer HRA (QSEHRA) or individual coverage HRA (ICHRA) are your best bets if you’re looking to buy an individual marketplace plan. A QSEHRA or ICHRA is a stand-alone HRA, meaning they don’t work with group health insurance. Instead, you choose the individual health policy—self-only or family coverage—that works best for you. Then, you pay the plan’s premiums and other medical expenses, and your employer reimburses you for the costs.

If you qualify for premium tax credits, you must choose between your ICHRA benefit and the subsidy. Like other traditional benefits, you do this based on affordability. If your ICHRA allowance is affordable, you should opt in to the benefit and waive your premium tax credits. But, if it's not affordable, you can opt out of the ICHRA and collect your tax credits.

If your QSEHRA allowance is affordable, you must waive your tax credits. However, if it’s unaffordable, you can keep your QSEHRA and your tax credits. You’ll just need to reduce your tax credits by the amount of your QSEHRA allowance.

If you want to stay on your employer-sponsored plan, ask them to add a group coverage HRA (GCHRA) to your compensation package. Also called an integrated HRA, this type of benefit specifically supplements group health plans. Employees enrolled in their employer’s group plan can receive reimbursements on out-of-pocket expenses their plan doesn’t cover, like deductibles, coinsurance, and copays. However, group plan premiums are ineligible.

Even though you can’t use your GCHRA allowance on your annual premiums, you can still use HRA funds to pay for various medical expenses, resulting in potential cost savings for you and your family.

Conclusion

The ACA set out to promote greater access to affordable coverage across the U.S., but the family glitch was a roadblock to achieving its goal. The IRS's current rules have given millions of people the financial assistance they need to afford their health plan premiums, taking great strides toward building a happier and healthier country.

While the family glitch fix grants healthcare access to many, it may not meet everyone’s needs. If your employer wants to boost their benefits package, suggest they offer a personalized HRA to help you lower your and your family’s out-of-pocket medical costs.

1. https://www.kff.org/report-section/ehbs-2023-summary-of-findings/

2. https://www.ehealthinsurance.com/resources/individual-and-family/how-much-does-individual-health-insurance-cost

3. https://www.kff.org/affordable-care-act/issue-brief/the-aca-family-glitch-and-affordability-of-employer-coverage/

4. https://www.healthcare.gov/medicaid-chip/childrens-health-insurance-program/

5. https://blogs.cdc.gov/nchs/2023/08/03/7434/

6. https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/11/statement-by-president-joe-biden-on-family-glitch-final-rule/

7. https://www.federalregister.gov/documents/2022/10/13/2022-22184/affordability-of-employer-coverage-for-family-members-of-employees