Money Crashers: How to Deal With the Family Glitch in the Affordable Care Act

Have you heard about the "family glitch" in the Affordable Care Act (Obamacare)? A month ago, I hadn't. I stumbled across an article about it in Consumer Reports while researching something else — and the more I read about it, the madder I got. Because here's the thing: This so-called "glitch," which has left an estimated 2 to 4 million Americans with no access to affordable health insurance, was by no means accidental. On the contrary, it was a deliberate move by the IRS and the GAO to interpret the wording of the law in a way that would grant health care subsidies to as few people as possible, saving the government money.

Here's how it works: Say you're a worker who has access to a health plan through your job, and the premiums cost only 9 percent of your income. So for you, everything is fine. The problem is, your family also needs insurance, and your workplace doesn't provide any subsidies for them. So if you were to enroll your spouse and kids under your workplace plan, your premiums would shoot up to 15, 20, even 25 percent of your income. So you would think your family should qualify for a subsidy, since they clearly don't have access to "affordable" health insurance through your job.

Except, according to the way the IRS has chosen to interpret the wording of the ACA, they do. Because the part of the law that talks about whether a workplace health plan is "affordable," for purposes of granting subsidies, bases it on the employee's "required contribution" toward the premiums, which can't be higher than 9.56 percent of income for the year 2018. But that same phrase, "required contribution," also appears in the section of the law dealing with the individual mandate. And in this section, the term refers to the percent of the worker's income that they'd have to pay for a "self-only" policy—one that covers the worker only, and not any of their family members. If the required contribution toward a self-only policy is over 8 percent, this section says, you aren't subject to the individual mandate and don't face a penalty for failing to buy insurance.

So the crafty IRS and GAO looked at these two passages and said, "Oh, would you look at that! This section defines affordability based on the 'required contribution,' and that section defines the 'required contribution' based on the cost of a self-only policy. So, clearly, that means if the worker can buy a self-only policy for less than 9.56 percent of household income, that means the family, by definition, has access to affordable care—no matter how much it would actually cost to cover the rest of them. Yes, we know, this will leave a lot of families with no access to affordable care, but what can you do? That's what the law says! If you want to fix the loophole, you'll have to get Congress to agree on an amendment to the law. Good luck with that!"

Learning that this huge loophole exists, and has existed for over five years now without ever coming to my notice, made me think this was a subject we clearly needed to cover on Money Crashers. I tackled this topic hoping to educate readers about, first of all, what the "family glitch" is and how many people it affects, and second, what people caught in this gap can do to get around it. And I feel like I succeeded in the first goal—but with the second, not so much. Because the more I researched, the more I discovered there are no good solutions here.

That's not to say there are no solutions. For instance, most children caught in this coverage gap—though not all—can get insurance through the Children’s Health Insurance Program (CHIP), which  covers children whose parents can’t get affordable coverage for them at work but aren’t poor enough to qualify for Medicaid. But for spouses, well, that's a different story. Your options are pretty much (a) pay the exorbitant rates for the workplace plan, (b) sign up for the cheapest plan you can find in the Health Insurance Marketplace (if that's any cheaper), (c) sign up for a cheap but crappy "short-term insurance" plan that provides next to no coverage, or (d) get a job solely for the insurance benefits.

I wish I could offer some more useful advice here, or at least some glimmer of encouragement that the problem will be fixed soon—but with the atmosphere in Washington these days, I think we shouldn't hold our breath on that. But we can, at least, make some noise about it. We can pester our Representatives and Senators ad nauseam, demanding that they do something about this problem, and spread the word about it as much as possible to others in the hopes that they will do the same. It may not be much of a chance, but it's the best one we've got.

How to Deal With the Family Glitch in the Affordable Care Act