What is the Family Glitch?

Under the ACA, employers who are Applicable Large Employers (average 50 or more full time equivalent headcount) are required to offer health insurance plans that have the following

    • Minimum Essential Coverage (MEC) – a list of required services that must be covered by the plan

    • Minimum Value – the plan must pay at least 60% of employee’s total allowed costs under the plan

    • Affordable – the employee-only premium (on the least expensive plan) must not exceed a certain percentage of the employee’s household income. For 2022, the affordability percentage is 9.61%.
      Individuals whose employers do not provide the above may be eligible for a premium tax credit (PTC) to buy insurance from the health insurance Marketplace, healthcare.gov.

If you noticed in the definitions above, affordability and minimum value are only concerned with the employee’s coverage and cost. The ACA does not require family coverage to be affordable nor does
it require minimum value for all the dependents – just the employee. However, if the employee’s single coverage was affordable under the ACA, the entire family was prevented from qualifying for premium tax credits to purchase coverage. Therefore, if an employee’s family coverage was too expensive, many spouses and children were left without coverage. This is the “family glitch.”

How Does The New Rule Work?

If an employer’s family coverage costs more than the annual affordability rate (9.12% of household income for 2023), then spouses and children have the potential to receive premium tax credits to purchase separate coverage for themselves on the Marketplace. This will be in effect for the 2023
open enrollment cycle on the Marketplace, which begins on November 1, 2022.

If a spouse or child qualifies for a premium tax credit under these rules, employers will not be subject to penalties under the ACA. Penalties will continue to be based on an employee’s coverage
(affordability, MEC, and minimum value) only.

How Does This New Rule Affect Employers?

The good news for Applicable Large Employers: this rule change has no effect on your plan requirements. If you currently offer affordable health insurance that provides the required coverages and minimum value, you don’t have to change anything. You do not have to change the types of documents you have to provide your employees. Your IRS reporting stays the same.

If OVD is your employee benefits partner, we address these issues with your annual renewal to ensure your plans compliant with ACA requirements. Therefore, there should be no further action required on your part. If you have any questions about this or any other matter related to your employee benefits, please contact your trusted OVD advisor.

Download the ACA Compliance Updates Guide Here