A record 107,784 Kansans selected an Affordable Care Act (ACA) Marketplace plan during the 2022 open enrollment period that ended on January 15, 2022. Many who selected a plan were able to take advantage of the more generous federal tax credits provided by the federal American Rescue Plan Act of 2021, which increased eligibility for more individuals and families to receive financial assistance to lower their monthly premiums. However, not everyone who could benefit from these enhanced tax credits was able to do so. It is estimated that 40,000 Kansans are not eligible to receive premium tax credits due to what is known as the “family glitch.”
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What is the ‘family glitch’?
Under the ACA, low- and middle-income consumers are eligible to receive premium tax credits to help pay their health insurance premiums for plans purchased on the ACA Marketplace. However, employees who are offered “affordable” and “adequate” employer-sponsored coverage cannot receive premium assistance. Currently, under the ACA, employer coverage is deemed “affordable” if the premium for a self-only employer plan is no more than 9.61 percent of the employee’s household income. However, this affordability determination also applies to all family members even when the cost to purchase family coverage far exceeds 9.61 percent of the family’s income. Families affected by the “glitch” then either pay substantially more for their health insurance coverage or go without.
What could change?
On April 5, the Biden Administration issued a proposed rule, titled “Affordability of Employer Coverage for Family Members of Employees,” that would change how eligibility for premium tax credits is determined starting in 2023 and fix the family glitch. Rather than using the cost for self-only employer coverage to determine whether dependent family members are eligible for a premium tax credit, the proposed rule would create a separate test for family members that would use the employee’s contribution toward family coverage. Under the new rule, the ACA Marketplace would determine whether (1) the employee has an offer of affordable self-only coverage; (2) the employee’s family members have an offer of affordable family coverage; and (3) any of those family members have an offer of affordable coverage from another employer.
Who could benefit from the proposed change?
Low- and middle-income families are most likely to benefit from the proposed changes, and the amount of savings would vary with higher savings for lower income families and more modest savings for middle-income families. Employees deciding whether it makes financial sense to purchase coverage for some family members on the ACA Marketplace will also depend on factors such as family income, the cost of the employer coverage, family size, the ACA plans available in the family’s geographic area, and their expected medical needs.
Based on the most recent data (2020), Kansas employees enrolled in an employer plan paid $1,541 per year, on average, in annual premiums for self-only coverage with an average deductible of $2,017, and they paid $7,253 per year, on average, in annual premiums for family coverage with an average deductible of $3,765. Applying this data to a family of four (two adults aged 30 and two children) in 2020, with a household income of $65,500 (250 percent of the 2020 federal poverty level), the annual premium for one of the adults with self-only coverage would have only been 2.3 percent of the family’s income and therefore considered affordable under the ACA. However, under the current rule, the cost for family coverage would be 11 percent of the family’s income but the other family members would not be eligible for premium tax credits if they choose to purchase potentially less expensive coverage on the ACA Marketplace. Under the proposed rule, since the employer’s family coverage exceeds 9.61 percent of the family’s household income, the three dependent family members would be eligible for ACA premium tax credits to purchase ACA marketplace coverage but the employee with self-only coverage would remain ineligible.
What does this mean for the Marketplace in Kansas?
If all the estimated 40,000 Kansans who would be newly eligible for the premium tax credits (and not already in an ACA plan) enroll, total Kansas Marketplace enrollment could increase by about 42 percent compared to total enrollment in 2020 and 2021 (the plan years prior to the enhanced tax credits provided by the ARP). However, the proposed rule notes several reasons why some families may choose to be uninsured or remain enrolled in their employer plan.
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- Not everyone who would be newly eligible for tax credits will see savings after adding the cost of the employee share of self-only employer coverage to the cost of an ACA Marketplace plan after receiving the tax credits for dependent family members.
- Multiple plans in a family means multiple deductibles and maximum out-of-pocket limits, which could increase total out-of-pocket costs.
- Employer-sponsored plans may have more generous benefits and provider networks compared to ACA Marketplace plans.
The proposed rule is open for public comment through June 6 and a public hearing is scheduled for June 27. If the rule is finalized, Kansas could see a lower uninsured rate, and to the extent that new enrollees are healthier than average, lower ACA Marketplace plan premiums. But whether the proposed rule would lead to the significant changes envisioned by the Biden Administration is unclear. More of the potential savings and enrollment may be realized if Congress extends the enhanced premium tax credits provided by the American Rescue Plan Act beyond 2022.