Intro
When the Affordable Care Act was passed into law in 2010, there were lofty promises of a world with affordable options for ALL people.
For employer coverage, the new regulations required you to have access to preventative care, and several proactive treatments. For individuals who didn’t have access to employer plans, the ACA became a place where essential coverage was made available to all and premiums were pegged to a family's size and income. This design made healthcare affordable for so many individuals without access to employer coverage, and today the ACA is strong by covering more than 17 million Americans according to a recent KFF study.
For employees, though, the Affordable Care Act has caused single people and families alike to see higher and higher annual rates. And, for employers that had similar rates from one year to the next, this was often due to new plans with higher copays and deductibles. As you can see below, the average monthly cost for a family of four was $465.66 in 2020. While this was the average, some employers chose to cover all plan premiums and others covered the employees’ premiums but not their spouses, resulting in $1,000+ per household per month.
Before October 7th, 2022, there was a gap in the federal rules, formally called the “Family Glitch” that caused these disparities in plans to be felt hardest by the working middle class. Luckily, this was fixed by the IRS and starting November 1st, 2022 families will be able to consider another option instead of being forced to pay for their family to be on the same plan.
Source: kff.org
Families in a Legislative Pothole
At a high level, a family normally would follow this path to getting health insurance:
Enroll in an employer's plan.
If an employer's plan is unaffordable, or I work for a small employer who doesn’t offer benefits then I can enroll in an Individual Health Insurance Plan through a broker via the Healthcare.gov Marketplace or my state's specific website.
The question, legally, is… how do we define “unaffordable?”
For plan year 2023, the cost to cover ONLY the employee cannot be more than 9.12 percent of the household income for just the worker. An example would be if $125 per month is deducted from your paycheck for health insurance premiums and you make $90,000 per year. This is less than two percent of your income going to your health care costs. Since this is below the 9.12 percent threshold, the plan is considered affordable.
The problem lies in that the extra cost to add family members to your employer’s plan is not considered when analyzing whether your plan is affordable. While many employers cover a substantial amount of your health care premium, they may not cover your dependents. At the same time, your employer-plan is still considered “affordable” since your employer is still paying most of your premiums. This is true even if it costs you $1,000 (or more) to add your spouse and/or dependents to your employee health care plan.
This pothole has cost families tens of thousands of dollars in premiums to cover their family members. Since a technicality counts the family members as “affordable”, families have not been able to compare individual health plans for spouses and dependents, and they have been forced to accept the high cost of health insurance.
Analysis Of The New IRS Rule
The IRS has done two things:
One, they updated the affordability test so that there would be one test for the employee only, and a separate test for the spouse and dependents. In the example above, the employee would have access to a plan for $125 per month, and therefore would qualify for employer coverage. The second test would consider the household rate of $1,125 per month (adding in the additional $1,000) against the same household income of $90,000. The ratio in this case is 15% of the household income, so the spouse and dependents can prove the plan is unaffordable and they would be able to enroll in a plan through the affordable care act.
At $90,000, the affordable care act plans, for this household, range from $326.47 for a bronze plan with a higher deductible to $646.23 for a gold plan with a $0 deductible, $20 copays for physician appointments, and full drug coverage. Because of the new IRS rule, individuals and families now have choices.
KEEP IN MIND, the employee who has access to affordable coverage would stay with the employer for the $125 per month, and the family members who were being added for another $1,000 would opt out and take a plan through the Individual Market.
The second thing the IRS did was expedite how soon families can take advantage of this.
They were aware that some people pick their plans annually and their coverage goes from January 1st – December 31st. Other employees have benefits that start at other parts of the year. The IRS made a few caveats. Every employee whose spouse and/or dependents are currently on an unaffordable family benefit, can shop in the Individual market between 11/1 and 12/15 for an affordable plan starting January 1st. Normally plans that renew on other dates in the year are given a pass to also be able to enroll during the same 11/1 – 12/15 timeline.
We mention the November 1st to December 15th window because it is important here. This is the Open Enrollment Period that individuals can enroll in health insurance that starts January 1st and covers through December 31st. Outside of this period, to enroll, you need to have a qualifying life event like moving to a new county, getting married, or having a baby. Without qualifying for one of the limited life events, you are unable to hop on the individual market outside of Open Enrollment.
How can I check affordability and plans?
Take the amount of premium to cover your family per year and divide it into your total annual income. Healthcare.gov has a handy income calculator that you can use here: HC.gov Income Calc. The income you want to use, is your expected income for calendar year 2023. For job wages, use gross (before taxes) income.
Once you have determined your family is “unaffordable”, you can use mysnaphealth.com to compare coverage options. This system is accessible 24 hours a day and uses a proprietary algorithm to account for your doctors, prescriptions, and income to sift all plans available in your area and make three personalized recommendations based on your specific needs.
Takeaway: If you have employer-sponsored health insurance, you can now split your coverage to save money.
Because of a new IRS rule, families can now choose between insuring spouses and dependents through the breadwinner's employer plan, or if it would save them money to split. The breadwinner would maintain coverage through work and the spouse and dependents would look for an individual plan that is more cost-effective.
By doing this split, you can stand to save hundreds of dollars per month that can be used for other personal needs and help you save money over the long haul.
This update was so momentous that the IRS fast-tracked eligibility to families starting November 1st.
About the Author: Joshua Brooker is a Legislative Policy Analyst who specializes in the Individual Health Insurance Markets. He has been quoted in the WSJ, Kaiser Health News, Insurance News Net, and authored 5.1 Million Are Impacted By The Family Glitch: How Is The IRS Taking Steps To Fix It? Published in American Benefits Specialist for the National Association of Health Underwriters. He’s an advocate for a better US Health System by working with clients, government, industry groups, and press.
About SnapHealth: Joshua Brooker spent 10 years with his team helping individuals with the Affordable Care Act Individual Market. Due to their model of service, and a focus on helping families, his team hit an apex in the volume of families they could actively help. They built SnapHealth as a self-guided resource for individuals and families to independently receive guidance on their terms. In the future, SnapHealth will add tools to help consumers navigate the out of pocket costs connected to their medical needs, too.