On June 2, 2022, Dr. Jamila Taylor, director of health care reform and senior fellow at The Century Foundation, submitted the following public comment to the Internal Revenue Service (IRS) in response to their notice of proposed rulemaking (NPRM), “Affordability of Employer Coverage for Family Members of Employees” (RIN 1545-BQ16). In her comment, Dr. Taylor describes how the new rule would undo a longstanding issue with the Affordable Care Act’s (ACA) regulations and promote affordability of marketplace health coverage for families.
I am pleased to provide comments to the Internal Revenue Service’s request for public input on the notice of proposed rulemaking (NPRM), “Affordability of Employer Coverage for Family Members of Employees,” RIN 1545-BQ16.
My name is Dr. Jamila K. Taylor and I serve as the director of health care reform and senior fellow at The Century Foundation (a progressive independent think tank), where I lead the organization’s work to build on the Affordable Care Act and develop the next generation of health reform to achieve high-quality, affordable, and universal coverage in America. I also work on issues related to reproductive rights and justice, focusing on the structural barriers to access to health care, racial and gender disparities in health outcomes, and the intersections between health care and economic justice. Throughout my twenty-plus-year career, I have also championed the health and rights of women of color and other marginalized communities both in the United States and around the world, promoting policies that ensure access to reproductive and maternal health care. I support this new regulation to address the family glitch. Fixing the glitch would expand access to affordable health coverage to millions of low- and moderate-income Americans, and this regulation is a well-reasoned, appropriate solution to this problem.
The Family Glitch Makes Health Coverage Less Affordable for Working Families
The Affordable Care Act (ACA) established health insurance marketplaces in each state to facilitate the purchase of health coverage for households who did not have access to another affordable source of coverage, such as Medicaid, Medicare, or employer sponsored insurance (ESI). The law also required all households to maintain “minimum essential coverage.” In order to further facilitate this coverage, the ACA also established tax credits to subsidize health insurance premiums for marketplace enrollees.
There are two components that current IRS regulations consider when determining if an offer of ESI qualifies as minimum essential coverage: the percentage of household income that the employee is expected to contribute and the percentage of estimated costs that the plan covers, also known as actuarial value (AV). If the monthly premium is greater than 9.5 percent of the employee’s household income or the AV for the plan is less than 60 percent, the coverage is deemed insufficient, and the employee is eligible for tax credits to subsidize marketplace coverage.
Under the current regulations, however, these components only consider individual coverage. If the premium for individual coverage is considered affordable, the household is ineligible for subsidies, even if the premium for family coverage costs more than 9.5 percent of their household income. President Biden explained it more clearly in his speech announcing this proposed regulation: if a working mom is told that she can afford ESI for herself, she can’t qualify for premium subsidies to afford that coverage for her family, even if that coverage is unaffordable for her. This approach is known as the “family glitch.”
The family glitch results in health coverage being less affordable for millions of Americans. The Kaiser Family Foundation estimated in April 2021 that more than 5.1 million people are affected by the family glitch, around 85 percent of whom are enrolled in ESI. The same analysis estimated that more than half of the people impacted by the family glitch (more than 2.7 million people) are children and that around 9 percent (around 451,000 people) are uninsured as a result. These results align with other research by the Urban Institute, which found that around 4.8 million people, including around 2.2 million children, are affected by the family glitch.
The Urban Institute also found that fixing the family glitch would save these households significant amounts of money. On average, families moving from ESI to marketplace coverage would save around $400 per person on health premiums. These savings are even greater for lower-income households: families with incomes below 200 percent of the poverty line would save around $580 per person.
This Proposed Rule Would Improve Coverage
On January 28, 2021, President Biden issued Executive Order 14009, ordering federal agencies to review all existing regulations to determine whether they are consistent with strengthening Medicaid and the ACA, including any policies that “may reduce the affordability of coverage or financial assistance for coverage, including for dependents.” As part of this review, the IRS issued a notice of proposed rulemaking on April 7, 2022, proposing a regulation that would change how marketplace tax credit eligibility is determined for family coverage.
In the proposed rule, the IRS outlines two readings of the Internal Revenue Code establishing premium subsidies. The first is what current regulations are based on, and it focuses solely on section 5000A(e)(1)(B), which establishes the 9.5 percent cap on employee contribution to health coverage. The second reading, however, also incorporates a modification to that provision found in section 5000A(e)(1)(C). This provision clarifies that eligibility for health coverage and determination of the affordability of that coverage is treated differently for individuals receiving coverage through a family member, such as a spouse or parent.
The new IRS regulations are based on this second reading, which views the law as modifying the affordability and generosity tests as modified by section 5000A(e)(1)(C). Under this new approach, the determination for minimum essential coverage would instead be based on the cost of family coverage, rather than individual coverage. Importantly, this approach does not change whether the employee has access to premium subsidies, but rather the employee’s family members. This approach means that the employee would continue to receive ESI and be ineligible for subsidies, while their family members would have access to premium subsidies for coverage through the marketplace. This balances the negative impact on businesses, which receive tax penalties for employees who instead enroll in marketplace coverage, with the benefit to consumers.
The Urban Institute estimated in 2021 that around 190,000 people would become newly insured and more than 700,000 people would have lower premiums if the family glitch were addressed. The Biden administration’s estimates are slightly higher, estimating around 200,000 newly insured individuals and nearly 1 million people with lower premiums. Regardless of which estimate is more accurate, the end result is hundreds of thousands of Americans with greater access to affordable health care.
Fixing the Family Glitch Is a First Step to Improving Coverage
The family glitch has plagued American families for too many years, and the Biden administration should quickly approve this regulatory solution to eliminate the problem. The high level of enrollment after the American Rescue Plan subsidies became available demonstrates how increased levels of assistance improve access to and enrollment in health coverage. Implementing this regulation in time for open enrollment for 2023 would provide significant relief to American families going forward and ensure the Affordable Care Act works as intended. I appreciate the opportunity to comment on this proposed rule.