How revisions to the “family glitch” impacts your employees

Some of your employees may be eligible for Marketplace subsidies

The definition of “affordable” group coverage has been problematic since the arrival of the Affordable Care Act (ACA) in 2013. Known as the “family glitch,” it barred millions of employees from receiving subsidized health insurance through the Marketplace.

In 2023, the IRS fixed the “family glitch.” This means that some of your employees may now be eligible for Marketplace subsidies. Here’s what you need to know.

Exactly what is the “family glitch?”

The ACA Marketplace is generally available to individuals and families who do not have access to employer group coverage. However, individuals whose group coverage is unaffordable do have access to the Marketplace and subsidies.

The “family glitch” refers to a 2013 ACA rule that based eligibility for a family’s premium subsidies on whether their employer group’s insurance was affordable. Up until 2023, only the cost of single (employee) coverage was evaluated. The plan had to cost no more than 9.12% of the family household income. (The cost is the amount the employee pays for the insurance, not the plan’s total premium.)

Beginning in 2023, what had been known as the “family glitch” was corrected. This means that in order to establish affordability, the cost of the family coverage was considered for employees selecting that type of coverage.

Put simply, instead of looking at the premium for single coverage, the family premium is now considered as well.

For calendar year 2024, the IRS decreased the affordability baseline from 9.12% in 2023 to 8.39%. This means that amount the employee pays for the insurance has to cost no more than 8.39% or less of the employee’s family household income to be considered affordable.

Why do I need to know about the family glitch?

As a result of this change, there is a greater chance that some of your employees who select family coverage will be eligible for Marketplace subsidies.

What should I do about it?

You may have employees who are eligible for subsidies based on the new rules. If you have employees who qualify for Marketplace subsides, you may be assessed a penalty by the IRS. To determine if any of your employees might fall into that category and what penalties you might face, speak to a tax or legal advisor.

Take action now.

If you believe you have employees who will now be eligible for Marketplace subsidies, you should inform them now. To help your employees choose the Marketplace plan and subsidy that is best for them, direct them to healthcare.gov

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AFTER THE 2023 “FIX,” and with the 2024 adjustment:

• Let’s consider the same employer group and the same contributions. For an employee who plans to cover a family, the cost will be $1,600 per month. 
• With the fix to the family glitch, the math looks like this: ($1,600 / 8.39%) X 12 months = $228,843.
• This means employees whose household income is less than $228,843 a year would be eligible for a Marketplace subsidy. That’s because the family premium would be more than 8.39% of the family’s household income. 

In the past, only single coverage was considered. As a result, few people who were offered group coverage were eligible for Marketplace subsidies.

Let’s look at another after-the-fix example:

• An employer group has a plan where the single coverage is $600 a month and family coverage is $1,800 a month. 
• This group contributes $600 a month for single coverage and $1,000 a month for family coverage. 
• So, the cost of a single plan, for an employee, is $0 a month. The cost of the family plan would be $800 a month. 

With the fix to the family glitch, the math looks like this: ($800 / 8.39%) X 12 months = $114,421.

In this case, any employee who selects family coverage and whose family income is below $114,421 would be eligible for the Marketplace subsidies.