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How does my access to employer-sponsored coverage impact my eligibility for subsidized coverage through the exchanges?

How does my access to employer-sponsored coverage impact my eligibility for subsidized coverage through the exchanges?

Q. My husband and I have a combined household income of $64,000 and we have three children. I know that income on its own would make us eligible for a health insurance subsidy in the exchange, but we also have access to health insurance through my employer. My company lets me buy health insurance for myself for $90/month, but adding my husband and kids brings the total payroll deduction to $850/month. My husband’s company doesn’t offer health insurance, so we’ve always covered the family on my plan. Can we drop them off of my plan and have them get subsidized health insurance through the state exchange instead?

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A. You’re correct that your household income on its own would make your family eligible for a subsidy if you didn’t have access to any other coverage. However, subsidy eligibility is also based on access to group health insurance. So the fact that your family has group health insurance available will be considered, and eligibility will be based on whether or not that coverage is considered “affordable.”

What counts as “affordable”?

The IRS issued a ruling in early 2013 that defined “affordable” as coverage that costs the employee no more than 9.5% of the employee’s household income, for just the employee’s portion of the coverage.

That threshold is indexed for inflation; in 2021, it’s 9.83% of household income. For 2022, it’s scheduled to drop to 9.61% of household income, although the Build Back Better Act would reduce the affordability threshold to 8.5% of household income.

Even though the coverage is actually for the family and thus results in a payroll deduction of $850/month (about 16% of your household income), your policy is still deemed “affordable.” This is because the $90/month that you pay for just your own coverage is about 1.7% of your household income, which is well under even the lower affordability threshold that the Build Back Better Act would implement. This situation is known as the “family glitch” — you can read more about it here.

Although the American Rescue Plan has increased the size of premium subsidies and made them more widely available, it did not change anything about how the affordability of employer-sponsored health coverage is determined. And although the version of the Build Back Better Act that passed the House (and is under consideration in the Senate) would lower the affordability threshold for employer-sponsored coverage, it would not change the rules that create the family glitch. In other words, subsidy eligibility for the whole family would continue to be based on whether the employee-only coverage is affordable, regardless of how much it costs to add the family to the employer-sponsored plan.

Medicaid or CHIP might be an option

But the good news is that your kids may qualify for coverage under Medicaid or the Children’s Health Insurance Program (CHIP). Income limits for Medicaid and CHIP eligibility vary considerably from one state to another, but in many states, eligibility extends above 250% of the poverty level. So if your family is struggling to cover the cost of insurance through your employer, check with the health insurance exchange or the CHIP office in your state to inquire about whether your kids might be eligible for Medicaid or CHIP.

And even though you won’t qualify for a subsidy in the state exchange, you might want to get quotes from the exchange for your husband — and for your kids if they’re not eligible for Medicaid or CHIP. It’s possible that you could find a full-price plan in the exchange (or off-exchange, since you’re not eligible for subsidies anyway) that’s less expensive than what you pay to add them to your plan.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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