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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?

A. Subsidy eligibility is based on household income as well as access to other health coverage. But the IRS has issued new rules, effective in 2023, to allow some families to take advantage of premium subsidies in the exchange if the employer-sponsored coverage available to them isn’t considered affordable. Here’s a look at how this works, and how it has changed as of 2023:

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 2022, it was 9.61% of household income, and for 2023, it’s 9.12% of household income.)

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From 2014 through 2022, the affordability determination — based on just the cost of the employee’s coverage — was applicable to both the employee and any family members they added to their plan, regardless of the cost to add the family members. This situation is known as the “family glitch” — you can read more about it here.

In other words, subsidy eligibility for the whole family was based on whether the employee-only coverage is affordable, regardless of how much it would cost to add the family to the employer-sponsored plan.

How does the family glitch fix help my family?

Fortunately for many families who have faced unaffordable employer-sponsored health insurance premiums, subsidies are newly available as of the 2023 plan year. The IRS finalized a rule change in October 2022 that makes some employees’ family members newly eligible for premium subsidies in the exchange. Under the new rules, the exchange now conducts two separate affordability determinations: One for the employee, and one for the whole family. For 2023, in both cases, they’re looking at the payroll-deducted premium amount and checking to see how it compares with 9.12% of the household’s income.

If the employee’s coverage is considered affordable, the employee is not eligible for subsidies in the exchange (ie, nothing changes for the employee under the new rules). But if the entire family’s coverage is considered unaffordable — more than 9.12% of household income in 2023 — the family members are potentially eligible for subsidies in the exchange if they opt to reject the employer’s coverage offer. (Subsidies are never available if you’re also enrolled in an employer’s plan, regardless of the cost.)

Your family’s $850/month premium for employer-sponsored coverage amounts to nearly 16% of your household income. So although your own coverage from your employer is considered affordable, the family’s coverage is not. Under the new rules, you will continue to be ineligible for subsidies in the exchange, but your family members might be newly eligible for subsidies. Here are some example scenarios to show how this works in different circumstances. The specifics will depend on your location and how old your husband is, as well as whether your kids are eligible for 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. Nothing has changed about this with the family glitch fix that the IRS implemented in the fall of 2022; kids who are eligible for Medicaid or CHIP can enroll in that coverage regardless of whether they have access to an employer’s 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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