What fixing the “family glitch” could mean for employer-sponsored health plans

June 2, 2022

Updated November 17, 2022

by Eli Neuman, Marsh McLennan Agency’s Director Strategic Initiatives

What was the family glitch?

The “family glitch” refers to a gap in “affordable” health care coverage that is not accounted for in the Affordable Care Act (ACA).  Under the ACA, employees must be offered at least one medical/Rx plan where the cost of single coverage is affordable.  A plan is considered “affordable” if the single coverage option generally costs less than 10% of the employee’s income.  The IRS sets this percentage each year and for 2022 the amount is 9.61%.  There’s a lot more in the details here around determining affordability – but we’ll keep it simple for this discussion.

If the employer offers affordable single coverage, that employer satisfies the affordability requirements in full.  Meaning, there is no requirement to offer affordable coverage to the employee’s eligible family members.  If an employee is not offered affordable single coverage from their employer, they might be eligible for premium tax credits on the public health insurance exchanges.  For lower paid employees this provides them an affordable option via the public exchange, in lieu of coverage through their employer.  But if the single coverage is considered affordable, both the employee and their family members become ineligible for the premium tax credits.

So this glitch meant that an employer could offer affordable single coverage to employees, charge a substantial amount to cover their dependents and remain compliant with the ACA’s affordability requirements.  This could leave employees with a high cost of covering their dependents and no way to obtain premium tax credits on the exchange.

What’s the fix and what does it mean for employers?

The final regulations largely mirror the proposed rules – but with some nuances.  Please click here for our CCOE’s summary of the final regulations and their impact on employers.

The Patient Protection and Affordable Care Act is a complex law.  Any statements made by Marsh & McLennan Agency, LLC  concerning tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as accounting, tax, or legal advice. We recommend that you seek the advice of your own tax, accounting and legal advisers as to whether or not the health plans you select are compliant with the Patient Protection and Affordable Care Act, including the minimum essential coverage requirements.