The Family Glitch, Premium Stacking, And The Need To Revisit Health Care Reform

The Family Glitch, Premium Stacking, And The Need To Revisit Health Care Reform

“For as we mark the turning of spring, we also mark a new season in America,” President Barack Obama famously remarked upon signing the Affordable Care Act (ACA). His prediction of the ACA’s impact was largely correct: It sharply increased access to health care. This progress notwithstanding, 12 years on, there remain enough challenges to expanding health insurance coverage while addressing affordability to suggest the need for another “new season” in health care reform.

The Biden administration’s efforts to fix the ACA’s “family glitch” illustrates the growing need for a new epoch of health care reform. The administration’s laudable and relatively uncontroversial efforts to repair this glitch open the door to another round of needed fixes. And the need for further work on this issue suggests a need to reconsider the broader scope of health care reform efforts in the coming years.

The ‘Family Glitch’ And The Biden Administration’s Fix

The ACA generally provides Marketplace Premium Tax Credits (PTCs) to those whose income is between 100 percent and 400 percent of the federal poverty level to control the cost of purchasing private health insurance coverage. A notable exception to this provision is the individual who has an affordable offer of employer-sponsored health insurance (ESI). Under the current regulations, ESI is deemed affordable if the cost of employee-only health insurance coverage does not exceed 9.83 percent of the household income in 2021. The so-called “family glitch” arises when a family member has access to affordable employee- only health insurance coverage but the cost of health insurance coverage for the whole family is greater than 9.83 percent of the household income.

The Biden administration’s health care agenda prioritized addressing lingering issues with the ACA, including a redress of the family glitch, which arose from a narrow interpretation of ESI affordability under sections 36B and 5000A(e)(1)(B) of the Internal Revenue Code (IRC). On April 7, 2022, the Biden administration, acting through the Internal Revenue Service (IRS), proposed to remedy the family glitch by promulgating a second affordability test for family members, that is, whether the cost of family health insurance coverage is greater than the annually adjusted percentage of household income (set at 9.61 percent for 2022). Critically, the addition of this affordability test will not amend the affordability test for employees, which the IRS found is sufficiently clear in the IRC.

On October 13, 2022, the IRS released final regulations on PTC eligibility after receiving 3,888 comments, an “overwhelming majority” of which wrote in support of the proposal. Others, however, criticized the alternative statutory interpretation, writing that it constitutes a bureaucratic arrogation of legislative authority. The IRS was moved by these arguments, defending its additional affordability test. In their final state, these new regulations amount to “the most significant administrative action” to implement the ACA since it was first enforced, according to Department of Health and Human Services Secretary Xavier Becerra.

Indeed, the Urban Institute estimated that 710,000 people will obtain subsidized Marketplace health insurance coverage thanks to the IRS’s fix. Of those, 190,000 would have been previously uninsured. On average, this study estimated that families will save $403 per family member by switching out of unaffordable ESI family health insurance coverage to subsidized Marketplace coverage.

Enduring Challenges

A significant new problem, however, is the separation of the employee from the family members. Under this approach, many households that are currently compromised by the family glitch will find that they are required to purchase two insurance plans: ESI for the employee (who is offered affordable employee-only health insurance coverage through his or her employer) and Marketplace insurance for the remaining family members (because the corresponding family health insurance coverage is unaffordable). This scenario is more than just frustrating for households managing two insurance plans. Paying two premiums is sometimes referred to as “premium stacking” and could limit the savings families could realize under this policy change.

In a comment on the initially proposed regulations, the New York City Department of Health and Mental Hygiene highlighted the problem of premium stacking, including the challenge of navigating different provider networks and “coordinat[ing] care choices and locations among family members.” The Department ultimately urged the IRS to take the additional step of allowing employees—in addition to family members—to purchase Marketplace health insurance if their ESI does not meet affordability standards. In response to this and other similar comments, however, the IRS wrote that the language of section 36B so explicitly requires that the affordability of an employee’s offered health insurance coverage be defined by the employee’s required contribution for self-only health insurance coverage as to foreclose any regulatory action on the issue.

Thus, it appears that only legislative action can remedy the “premium stacking” issue. Initial evidence suggests a bipartisan appetite for such a policy change. In one survey conducted by United States of Care, 84 percent and 73 percent of Democrats and Republicans, respectively, indicated support for allowing individuals to use tax credits to obtain health insurance coverage outside of their employer. However, Republican lawmakers’ excoriation of even the limited steps taken by the IRS in its proposed regulations draw into question whether bipartisan congressional support is similarly robust.

Future Directions

The apparent need for further policy solutions to address the premium stacking issue raised by the new federal regulations to fix the “Family Glitch” is reminiscent of Augustus De Morgan’s pithy rhyme, “great fleas have little fleas upon their backs to bite ’em / And little fleas have less fleas, and so ad infinitum.” The solution to fix the “Family Glitch” is a logical, necessary response to a growing hole in access to health care in the US. But it suggests that in a few years health care policy makers will be called upon to fix the “premium stacking” problem. More broadly, it also raises the question of what the future of health care reform and access to health care should look like in the coming years.

Joseph Tainter’s seminal work, The Collapse of Complex Societies, argues that societies collapse when they become too complex. With ever-growing complexity, he argues, society becomes brittle and increasingly unable to withstand stressors such as pandemics or climate change. The US health care system is absolutely a complex social structure. While the ACA helped stave off disasters, such as an increasing number of uninsured individuals and run-away health care costs, it also greatly added to the complexity of the system.

We are now in an era of second-generation ACA reforms, fixing problems that were raised by a variety of factors including hasty drafting and political headwinds. We may even be at the precipice of third-generation ACA reforms, such as solutions to the challenge of premium stacking. But the need for these reforms and ever-increasing complexity suggest that health care stakeholders and advocates may want to instead consider if we should revisit “big picture” initiatives to rebuild health care in the United States rather than just plugging holes as needed. And with an increasing share of Americans favoring bolder shifts in the US health care system such as single national health care coverage, now may be the time for these conversations.

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