New Studies Highlight Impact Of Fixing The Family Glitch

In early April, the Biden administration issued a proposed rule to fix the so-called family glitch. If finalized, this revised interpretation would extend marketplace subsidies to millions of people — primarily children and women — who face high costs for job-based family coverage but are currently ineligible for financial help through the marketplaces. The history of the family glitch interpretation and a summary of the proposed rule are available here.

This article highlights two recent analyzes — one from the Kaiser Family Foundation and one from Third Way — of the impact that the proposed rule would have. The first study suggests that fixing the family glitch could be especially important for extending affordable coverage to the family members of workers at smaller businesses (ie, those with up to 200 employees). The second study includes national and state-specific estimates of savings for families affected by the family glitch. These new studies build on prior analyzes of who is affected by the family glitch and the impact of a fix.

Responses To The Proposed Rule

The proposed rule has been praised by Democratic members of Congress, advocates such as First Focus, AHIP, employer representatives such as the ERISA Industry Committee, and the Washington Post editorial board. Many have emphasized that the revised interpretation would improve the affordability of coverage for millions of people and is a long overdue change from the Internal Revenue Service (IRS). While there have been some critics — including Republican members of Congress, the American Action Forum, the Paragon Health Institute, and the Wall Street Journal editorial board — many of the critics oppose the Affordable Care Act in general. They argue that the Biden administration is overstepping its authority in seeking to reverse an Obama-era interpretation.

These are, of course, preliminary reactions. Formal comments on the proposed rule are due on June 6, 2022. The IRS may also hold a hearing on June 27 if it receives requests to do so by June 13. Relief under the rule (if finalized) would not be immediate, but family members who qualify would be eligible for financial help beginning with the 2023 plan year.

Prior Data On The Family Glitch

Previous Health Affairs Forefront articles have summarized prior data on the impact of the family glitch. This includes two detailed studies from 2021 by the Kaiser Family Foundation and the Urban Institute. Both found that about 5 million family members were affected by the family glitch.

According to the Kaiser Family Foundation, an estimated 5.1 million people fell into the family glitch in April 2021. Most (2.8 million) were children and nearly half of whom (46 percent) were low-income, earning between 100 and 250 percent of the federal poverty level. Most of these individuals (85 percent) were enrolled in job-based family coverage, while about 9 percent are uninsured and 6 percent purchase unsubsidized individual coverage. The vast majority (94 percent) of those in the family glitch reported that they are in good health.

The Urban Institute found that 4.8 million people, nearly half of them children, would be newly eligible for premium tax credits if the glitch were fixed. About 90 percent were insured but paying more than 9.83 percent of their family income towards that coverage. Although many more would be eligible, about 710,000 people would enroll in subsidized marketplace coverage, leading to 190,000 fewer uninsured people. (Consistent with the Urban Institute’s 2021 analysis, the White House estimated that fixing the family glitch as proposed would extend coverage to 200,000 uninsured people and reduce premiums for nearly 1 million Americans.) Because these new enrollees would be younger and healthier, individual market premiums. would be, on average, about 1 percent lower.

The Urban Institute further quantified the impact of fixing the family glitch on affordability. Families that switched from employer-sponsored plans would save about $ 400 per person in premiums on average, with even greater gains ($ 580 per person) for those with incomes under 200 percent of the federal poverty level. (In a 2016 study, the Urban Institute estimated that those who fell into the family glitch were spending, on average, nearly 16 percent of their income on premiums alone.) Increased premium tax credits and cost-sharing reductions to cover those who newly enrolled in subsidized marketplace coverage would cost about $ 2.6 billion annually. There would be no disruptions to the employer market even as hundreds of thousands of families gained access to affordable marketplace coverage.

These analyzes built on yet earlier studies or analyzes from RAND, the Agency for Healthcare Research and Quality (AHRQ), and the US Government Accountability Office (GAO). In 2015, RAND estimated that an estimated 4.2 million people could gain access to premium tax credits. Marketplace enrollment would increase by about 1.4 million and the number of uninsured people would fall by 700,000. Average total health spending among newly subsidized families would also fall significantly — by about 32 percent. AHRQ’s estimates were even higher: AHRQ noted that an estimated 10.5 million adults and children were affected by the family glitch in 2014.

In a 2012 report, “Opportunities Exist for Improved Access to Affordable Insurance,” the GAO noted that an estimated 6.6 percent of uninsured children — about 460,000 uninsured children — would be ineligible for premium tax credits because of the IRS’s (at-that-time) ) proposed affordability standard. In light of the disproportionate impact of the IRS’s interpretation on children, the GAO recommended that the IRS consider an alternative interpretation for the family glitch.

New Data On The Family Glitch

In the wake of the proposed rule, we have seen new data from the Kaiser Family Foundation and Third Way. These studies focus on who will be most affected by the proposed fix and how much families could save under the rule, if finalized.

On April 12, the Kaiser Family Foundation released a new analysis highlighting the types of workers that are most likely to benefit from the proposed rule. Overall, about 12 percent of covered workers were asked to pay at least $ 10,000 for coverage for a family of four. But this is even greater for workers at smaller businesses with up to 200 employees where 29 percent are asked to contribute at least $ 10,000 for family coverage. Many of these workers are concentrated in firms with 49 or fewer employees. Contributions for family coverage are also higher for those in the service industry as well as those in agriculture, mining, and construction.

Why is family coverage so expensive for these workers? This may be because some small employers subsidize only the cost of employee-only coverage (not family coverage). This leaves the employee to pay thousands of dollars in full premium costs for their family. Indeed, an estimated 19 percent of small businesses that offer health insurance make little or no contribution towards the cost of family coverage; These small businesses employ about 17 percent of covered workers at smaller firms.

On April 13, researchers at Third Way used six representative families to estimate the amount of savings — by income and state — that families could see if the proposed rule is finalized. Emphasizing that the cost of family coverage has more than tripled since 2000, the researchers calculated the amount that a family affected by the family glitch would pay for coverage under a revised interpretation. This accounts for the cost of the coverage for family members (who would be newly eligible for marketplace subsidies) and the cost of employee-only coverage (who would remain in job-based coverage).

Overall, Third Way estimates that fixing the family glitch would reduce health care costs by 4,152 for a typical family of four with an income of $ 53,000 (ie, 200 percent of the federal poverty level). A single parent with two children who earns $ 43,920 (ie, 200 percent of the federal poverty level) would save about as much — an estimated, 4,113 per year. Families at 300 percent of the federal poverty level would see lower savings while those at 400 percent of the federal poverty level would not see savings under the fix to the family glitch. The analysis also reflects median savings for families in each state in 2022 across 200, 300, and 400 percent of the federal poverty level. Savings would vary by income, the cost of job-based coverage, geographic location, and state Medicaid eligibility, among other factors.

Third Way’s estimated savings are higher than those from the Urban Institute (noted above) because their analysis assumes a continuation of the subsidy enhancements under the American Rescue Plan Act (while the Urban Institute’s does not work).

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