Under the Affordable Care Act, Americans can enroll in a health insurance plan in the individual market regardless of whether or not they have access to an employer-sponsored health insurance (ESI) plan. But subsidy eligibility is impacted by access to an employer-sponsored plan.
If a person has access to an employer-sponsored plan – either as an employee or as a dependent – eligibility for subsidies in the exchanges depends on the cost of the employer-sponsored plan, and also on the level of coverage it provides.
Subsidies in the exchange/marketplace are not available to people with access to an employer-sponsored plan if the employer-sponsored plan is considered affordable and provides minimum value. Here’s how those are defined:
Is the plan affordable?
An employer-sponsored plan is considered affordable in 2022 if the employee’s share of the premiums is no more than 9.61% of household income. (Note that this threshold changes each year; it was 9.83% in 2021, and 9.78% of household income in 2020, and 9.86% of household income in 2019. The version of the Build Back Better Act that passed the House would have set it at 8.5% of household income from 2022 through 2025, but that legislation stalled in the Senate.)
If the employee’s share of the premiums exceeds 9.61% of household income, the employer-sponsored plan is considered unaffordable, and the employee and dependents are eligible for subsidies in the exchange.
Employers can offer affordable group health insurance, or they can choose to offer an ICHRA that’s substantial enough to make the employee’s cost for the second-lowest-cost silver plan in the exchange/marketplace equal to no more than 9.61% of the employee’s household income (small businesses also have the option to offer a QSEHRA).
How does the family glitch affect the affordability determination?
In either case, the affordability test is only applied to the employee’s portion of the premiums; the cost to add dependents to the employer-sponsored plan (or an individual market plan that’s reimbursed via an ICHRA) is not considered.
Regardless of how much it might cost to add dependents to the employer-sponsored plan, they are not eligible for subsidies in the exchange if the employer-sponsored plan is considered affordable for the employee alone. This is known as the “family glitch.” But the Biden administration has proposed a partial fix for the family glitch, which is expected to be in effect as of 2023. Some families will be newly eligible for premium subsidies as a result of this fix, but it won’t help all families currently caught by the family glitch.
Large employers are required to offer coverage to employees and their children, but there’s no requirement that coverage be offered to employees’ spouses. That will continue to be true even in 2023. And if the spouse is ineligible for the employer-sponsored plan, he or she is eligible for subsidies in the exchange assuming that other eligibility requirements are met (this is already true, and doesn’t depend on the proposed family glitch fix, but not all spouses in that situation end up actually qualifying for premium tax credits).
But through the end of 2022, if the spouse and/or dependents are eligible for employer-sponsored coverage and the employer’s plan is considered affordable for the employee alone, the family is ineligible for premium subsidies.
How is affordability determined if the employer offers multiple plans?
If an employer offers multiple coverage options, the affordability test is based on the least expensive option (as long as it provides minimum value, as described below), regardless of which option the employee selects.
And the affordability test applies separately to each policy that the household might have, regardless of the total combined premiums. For example, if each spouse has a separate plan from an employer, the affordability test is based on how each plan’s premium compares with the household’s total income, rather than comparing how the total amount of combined premiums compare with the household income.
But large employers tend to use safe harbor methods of ensuring that the coverage they’re offering is affordable. These methods are based on the employee’s rate of pay, the employee’s W-2 wages, or the federal poverty level, since employers generally don’t have any way of knowing an employee’s household income.
Does the plan provide ‘minimum value’?
The employer-sponsored plan provides “minimum value” if it covers at least 60% of average costs for a standard population (ie, an actuarial value, or AV, of 60 or above) and includes “substantial coverage” for inpatient care and physician services. Bare-bones coverage that has AV lower than 60 does not provide minimum value, and people who are offered such plans are still eligible for subsidies in the exchange.
HealthCare.gov has an “employer coverage tool” that enrollees can use to determine whether the employer-sponsored coverage available to them is affordable and provides minimum value. The employer completes the form, and the enrollee uses the information on the form when enrolling in a plan through the exchange.
Exchange subsidies are not available to people who have access to affordable, minimum value insurance through an employer, regardless of whether the person is enrolled in the employer-sponsored plan. If you’re eligible for the employer-sponsored plan under the employer’s rules but missed the enrollment window or chose not to enroll, you’re still considered eligible for an employer-sponsored plan, and not eligible for premium subsidies if the guidelines above are met. (Note that large employers report this information to the IRS on Form 1095-C.)
If an employer offers multiple plan options, as long as one of them meets both the minimum value and affordability test, the employee and any eligible dependents cannot opt instead to purchase subsidized coverage in the exchange. This is true even if the employer also offers plans that don’t meet the affordability and/or minimum value tests.
A change in your ESI can trigger a SEP
If your employer-sponsored insurance was previously affordable and offered minimum value, you weren’t eligible for subsidies in the exchange to offset the cost of an individual market plan.
But if the employer-sponsored insurance later becomes unaffordable OR the coverage is reduced such that it no longer provides minimum value, and if you are otherwise eligible for subsidies in the exchange based on your income, you’ll have access to a 60-day special enrollment period in the exchange.
Effective dates follow the normal rules, so in most states, coverage will be effective the first of the month following enrollment (this is a rule change that applies as of 2022; prior to 2022, HealthCare.gov had a deadline of the 15th of the month for coverage to start the first of the next month).
This SEP only applies in the exchange, as it’s predicated on the applicant becoming eligible for premium subsidies, which aren’t available outside the exchange.
The SEP can be triggered by an increase in premiums for the employer-sponsored plan such that the portion the employee has to pay (for employee-only coverage, not counting dependents) goes above 9.61% of household income in 2022. This situation could also be triggered by a drop in income (including due to a reduction in hours) without an accompanying reduction in the premium that the employee has to pay for his or her own coverage through the employer-sponsored plan.
The SEP can also be triggered by the employer dropping coverage altogether, or making changes to the plan that bring it below the minimum value threshold. The ACA’s employer mandate requires businesses with 50 or more full-time equivalent employees to offer coverage that meets minimum value requirements, but employers can choose not to, and pay the applicable penalties instead. And employers with fewer than 50 employees are not required to offer coverage at all.
(If you’re uncertain about your eligibility for a special enrollment period, call (619) 367-6947 to discuss your situation with a licensed insurance professional.)
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 healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.