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IRS makes ruling on the “Family Glitch”

On October 11, 2022, the Internal Revenue Services made a final ruling regarding health insurance for families regarding the “Family Glitch”. The IRS ruled that starting in 2023, affordability of insurance for family members by an employee-sponsored plan will be determined by the family’s premium, rather than the employee’s coverage cost. 

What is the “Family Glitch”.

The “Family Glitch” refers to a section of the Affordable Care Act (ACA) that would not allow families to utilize premium tax credits and cost sharing subsidies to help lower their insurance premiums.  Currently, spouses and/or children that are on an employer sponsored health plan do not qualify for subsidies on the health insurance marketplace if that coverage is deemed affordable for the employee, regardless of the cost of coverage for the spouse and/or dependents.  Many of these families would have qualified for premium tax credits and cost sharing reductions based on the family’s household income.

Within the original context of the ACA, if a family’s employer-sponsored health insurance coverage was deemed affordable for the employee, then the entire family would not be eligible for marketplace subsidies.  In 2023, “affordable” coverage will be less than 9.12% of the family’s household income.

President Biden has worked to move that number back to the original threshold of 8.5% through the Build Back Better Act and the Inflation Reduction Act, but that legislation has stalled.  The new ruling by the IRS will provide many families relief, even if it does not hit the 8.5% mark.  The President released a statement regarding the fix to the “family glitch” and how this fix will expand access to coverage to millions of Americans.

How many will this Affect?

Recently, the KFF ran an analysis that estimates that about 5.1 million individuals were affected by the “Family Glitch” and many low to middle income families will now have access to more affordable health insurance.  The IRS estimates that somewhere between 600,000 and 2.3 million individuals that are impacted by this change will enroll in marketplace coverage.  These changes take place for ACA plans that go into place starting January 1st, 2023.

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