The ‘Family Glitch’ – Basically, if one spouse has a job-based plan and that plan is considered “affordable,” and meets the “minimum value” standard, the rest of the family is NOT eligible for a subsidy!
So, what is considered ‘Affordable’ coverage’? Here’s how you can calculate if your employer based plan is affordable or not:
- What is the monthly amount the employee pays toward the LOWEST-PRICED PLAN THE EMPLOYER OFFERS (exclude the beneficiaries’ premium)? $_________
- Multiply Line #1 x 12 to come up with an annual amount = $ _________
- What is the ENTIRE family’s tax HOUSEHOLD MAGI for the year? $_________
- Multiply #3 x 9.78% = $__________. If the amount the employee contributes to their health plan (Line #2) does not exceed 9.78% of the household MAGI (including spouse’s income), the employee’s plan is considered ‘affordable’. It’s not fair but unfortunately affordable. If the amount from Line #2 is MORE than Line #4, then it is considered ‘unaffordable’ and the rest of the family is eligible for a subsidy through the Exchange.
So that means if your spouse works or receives Social Security, ALL their income will count against you. However, the premium you would pay for dependent coverage at work DOES NOT COUNT as the employee’s required contribution! I know, it doesn’t make much sense. That’s why we call it, the ‘FAMILY GLITCH’!
- Here’s a ‘Family Glitch’ example: Consider a family of five with a household taxable MAGI of $60,000/year. They’re well below the income limits for subsidy eligibility for a family of 4 (see FPL chart). Let’s assume that the working parent’s employer offers a good health insurance plan, and pays most of their employees’ premiums. The employee pays $100/month and the employer pays the rest. That’s just 2% of their income – well under the 9.78% threshold – so the coverage is considered affordable. Wait…there’s more to the story…The other three (3) members of the family are considered ‘dependents’ and most employers offer dependent coverage but do not contribute anything toward dependent coverage. Therefore, in this example, if the other 3 family members were to choose a plan through the employer group plan, it would cost them $1,500/month. Now the total payroll deduction for family health insurance is $1,600/month ($100/employee + $1,500/other 3 family members), which is a whopping 32% of their household income. Hold the phone! Here’s the GLITCH…the whole family is still considered to have access to “affordable” employer-sponsored health insurance, because the affordability determination is based solely on what they pay to cover the employee, not the dependents’ premiums . I know, it doesn’t make sense and it doesn’t seem fair but that’s the rule. And if the family does obtain a subsidy, the employer could get penalized!
TIP: It’s very possible the ‘Family Glitch’ only applies to employers with over 50 employees. Why? We have many clients’ that are receiving a subsidy and are offered insurance through their workplace. We have copies of the letter that the employers receive from the Exchanges and it states they should respond if they are an Applicable Large Employer (ALE). That leads us and our clients to believe if the employer is under 50 employees, the Family Glitch would not apply and the family SHOULD be able to legally obtain a subsidy on the Exchanges. We have researched extensively and cannot find this in writing anywhere on the government sites nor has anyone on the Exchanges been able to verify if this is true. In the meantime, many of our clients that work for employer under 50 employees are still comfortable enjoy receiving their subsidies!
TIP: Here’s another glimmer of good news. If the employer purchased a group plan through their State Exchange (CoveredCA in CA), they can EXCLUDE dependent coverage which opens up the door for your dependents to receive a subsidy on the Exchange, even if they are over 50 employees.