'Family glitch' can leave kids without affordable health coverage

When one thinks of Obamacare glitches, the great website meltdown of 2013 instantly springs to mind.

But another Affordable Care Act glitch that has nothing to do with technology could leave nearly half a million children without affordable health insurance – the so-called “family glitch.” A bill to repair the problem was introduced on June 5, but is unlikely to pass.

What is the “family glitch”? The answer is wonky, so bear with me.

Families with incomes below 400 percent of the federal poverty line are eligible for premium subsidies, unless they have an affordable health plan at work. The ACA tries to keep those with employer-sponsored insurance from abandoning their existing coverage for taxpayer-subsidized exchange plans. It does this by limiting government subsidies to those with employer plans that are deemed “unaffordable.”

But the definition of “unaffordable” turns out to be crucial. The ACA considers premiums on employer-based plans unaffordable if they exceed 9.5 percent of household income. But as the IRS has interpreted the law, the 9.5 percent rule applies to the cost of premiums for individual plans – not family plans.

Since premiums for employer-based family plans cost considerably more than premiums for individual plans, they’re far more likely to exceed 9.5 percent of family income and more likely to be a big financial burden. But employees facing such budget-busting family plans can’t seek relief by turning to exchange subsidies, since the government is only looking at the price of individual plans when it determines affordability.

In 2012, The New York Times’ editorial board called the glitch “a bizarre development that undercuts the basic goal of health care reform — to expand the number of insured people and make their coverage affordable.”

The Government Accountability Office (GAO) estimated that 460,000 uninsured children – or nearly 7 percent – would be ineligible for coverage because even though their household incomes qualified their families for tax subsidies, “they were considered to have access to affordable employer-sponsored insurance based on IRS’s proposed affordability standard.”

The choices for these children’s families are to pay more for the workplace plan, buy an unsubsidized family plan on the health care exchange, or go without coverage and pay a penalty. A Kaiser Family Foundation analysis of such families concludes: “On average they’d have to pay 14 percent of their income to opt into the employer coverage, substantially more than what they would pay in an exchange.”

And it may get worse. The number of uninsured kids could balloon to nearly 2 million, according to the GAO, if funding for the Children’s Health Insurance Program is allowed to run out in September 2015.

If families do lose their kids’ CHIP coverage, they can’t necessarily turn to the exchanges – not if they have an “affordable” individual employer-based plan. As Georgetown University’s Center for Children and Families put it in a blog post:

That’s 1.9 million children who would potentially be without coverage if exchange plans were used to replace CHIP and the affordability test remains in place as proposed.

While the Obama administration could undo the family glitch without legislation, that hasn’t happened, for reasons that remain unclear. The President’s inaction has prompted some in Congress to propose a legislative patch. Enter Sen. Al Franken (D-Minn.) and 22 mostly Democratic co-sponsors of a bill called the Family Coverage Act.

Franken’s office explains how it would tackle the problem:

The legislation does this by defining affordable job-based health coverage by what is affordable for a family, not just an individual employee. Unlike the current interpretation of the law, this definition is in line with what was intended by Congress, and would allow families that currently do not have access to affordable health coverage through an employer to access tax credits to buy their coverage.

Sounds reasonable, right? GovTrack.us gives the bill, which has been referred to the Senate Committee on Finance, a zero percent chance of being enacted.