Consumer and children's advocates are blasting an IRS final rule released Wednesday (Jan. 30) that they say will leave thousands of children and adults uninsured because they will be blocked from receiving private insurance subsidies on the exchanges if a worker in their family has affordable coverage through their employer. The rule resolves once and for all the uncertainty surrounding the so-called "families glitch," as it was dubbed by critics, who say that the policy does not hew to the health law's intent of expanding access to affordable health insurance.
In the highly anticipated final regulation, the IRS maintained its previous interpretation that the test for determining whether employer-sponsored coverage is affordable is based on an employee's cost toward self-only coverage, and if that individual coverage is affordable then the worker and related individuals would not be able to access premium tax credits for exchange coverage, regardless of how much the cost of family coverage is. In its regulations, the IRS says coverage is affordable to a full-time employee if the employee does not contribute more than 9.5 percent of household income toward premiums for self-only coverage, an interpretation that employers support.
Separately, in a proposed regulation on the health law's individual mandate and exemptions to the penalty for not having health insurance, the IRS wrote that if an employee's required contribution toward family coverage under an employer-sponsored plan exceeds 8 percent of household income, the employee's spouse and claimed dependents are exempt from paying the penalty for not having health insurance. Sources that wanted the employer-sponsored coverage affordability test to be based on the cost of family coverage say that this is a small consolation, as many family members and children who can't get access to affordable health insurance on the exchanges won't be doubly hit with a penalty. But it still isn't the ideal outcome because thousands of people will stay uninsured and the real goal of the health reform law is to provide affordable health coverage to more people, they say.
A consumer advocate adds that the IRS' proposal is basically a tacit admission that, because of its position on premium tax credit availability for family members of a full-time employee with affordable coverage, many family members will not be able to get affordable coverage and they will probably remain uninsured. The administration's regulations also clarify that, for individuals that are technically eligible for Medicaid under the health reform law but live in states that decide to not expand their programs, they will also be exempt from the individual mandate penalty.
Several House Democrats and groups such as First Focus wanted the IRS to base the employer-sponsored coverage affordability test on the cost of family coverage, not individual coverage, arguing that the true way to judge if health insurance is affordable is to look at the cost to the entire family. But when scoring the provision, the Joint Committee on Taxation assumed that if an employee was deemed to have affordable self-only coverage, the worker and his or her family members would not be eligible for the ACA's private insurance subsidies.
Alternative policies had also been floated - the affordability alternative to fix the "families glitch," as consumer and children's groups have called it, would be for subsidy eligibility for an employee to be based on affordability of self-only coverage, but additional family members' eligibility would be based on the cost of family coverage. That way, if the employee's cost for self-only coverage did not exceed 9.5 percent of household income, the employee could stay on their employer-provided healthcare, but their family members could still be eligible for subsidized coverage in the exchange if the cost of family coverage were more than 9.5 percent of their household income. The policy had been pitched as an alternative by some consumer advocates and in a UC-Berkeley/UCLA report about the proposed premium tax credit rule.
The health law says individuals with incomes between 100 percent and 400 percent of the federal poverty level are eligible for the premium tax credits. In a report earlier this year, the Government Accountability Office asked the Treasury Department to consider the impact of its proposed affordability standard for employer-sponsored insurance on eligible family members, and whether it would be consistent with the goals of the health reform law to adopt a different approach that would consider the cost of insuring eligible family members. GAO added that Treasury and the Internal Revenue Service, if necessary, could seek clarification from Congress regarding its intent on the affordability standard, which is used to determine eligibility for premium tax credits for private insurance purchased in the exchanges.