The Biden administration moved this week to eliminate the so-called “family glitch,” giving 391,000 California residents a way to slash those costs starting this week.
When the U.S. Affordable Care Act went into effect, it excluded workers from buying insurance coverage for their families on state-based exchanges if they could get a job-based policy for themselves that cost less than roughly 10% of their household income.
The trouble was that, while workers could get policies for themselves at that rate, they have been paying significantly more of their household income to include their partners and children on the policies.
So, the Internal Revenue Service and the U.S. Treasury Department have now changed that regulation. Workers now can insure their partners and children through Covered California if the cost of an employer plan for them exceeds 10% of household income.
“The door to more-affordable health coverage is opening today for hundreds of thousands of Californians,” said Jessica Altman, executive director of Covered California. “There are families across California who will now be able to save hundreds of dollars a month, and thousands of dollars a year, if they switch from employer-sponsored coverage to a Covered California plan.”
Using a computer-simulated model, health policy experts at the University of California, Berkeley, and the University of California, Los Angeles, projected the impact of the family glitch and the new regulation.
They noted that 615,000 Californians — the partners and children of the workers — would have been caught in the glitch in 2023. About 80% of them are enrolled job-based insurance plans, and 38% are children.
Nearly 391,000 of those caught in the glitch would qualify for subsidies on Covered California, the state-based insurance exchange, noted health policy researcher Miranda Dietz of the UC Berkeley Labor Center. She worked with colleagues at the UCLA Center for Health Policy Research to examine the impact of the changes in IRS regulations prior to their approval.
The idea would be to keep families from paying out more than 10% of their household income on health insurance, a figure that the Affordable Care Act uses as a measure of whether coverage is affordable, Dietz said.
Using two plans to save money
In a presentation to the Covered California board, she offered up an example of what the change could mean for a family of four with an annual household income of $76,700. If premiums to insure the family were $1,000 a month, that would be 15.6% of the family’s annual income.
But what if they could buy a job-based policy for only the worker and then get subsidized coverage through Covered California? They would pay $200 a month through pre-tax payroll deduction and $320 monthly in after-tax premiums for the family. Dietz said that would amount to 8.1% of the family’s income.
Essentially, Dietz’s example showed that a family could cut their costs in half. Still, she said, the simulation projected that only 149,000 of those eligible for subsidies would actually take advantage of them for their coverage in 2023.
“You’re getting two different plans that might have two different deductibles,” she said. “Even if you’re one of the 391,000 who qualify for subsidies, you could still decide that you’re better off sticking with your kind of expensive employer plan because it might cover more. You don’t have the two-plan issue. You don’t have the two deductibles. It’s complicated.”
These projections are not an exact science, Dietz said, because you can’t know how many people will get the word about this change and, once they do, how they will react once they weigh all the variables. As word spreads, Dietz said, the number of people taking up the offer should grow.
Heath care subsidies extended
There’s another important variable here, Dietz said. The federal government has extended to 2025 some key financial help it offered last year, raising subsidies it paid to those who were already eligible and expanding them for the first time to individuals making more than 400% of the federal poverty line.
As a result of that help, included in a 2021 COVID-19 federal stimulus law, two of every three Covered California enrollees can get name-brand coverage for $10 a month or less, Altman has said while on stops to promote the agency’s open enrollment period, which ends Jan. 31.
Of the 149,000 Californians that Dietz’s team projected will sign up through Covered California, 97,000 were previously enrolled in employer-sponsored insurance, 38,000 have been uninsured, and 14,000 were enrolled in the individual market without subsidies.
“By addressing this critical issue, the Biden administration is building on the Affordable Care Act and its mission to expand access to quality health care coverage,” Altman said. “Covered California is offering new tools to help people see if they are eligible, and we are reaching out to consumers who may benefit from this landmark decision.”