A-1. The Basic Rule. Coverage is “affordable” if a full-time employee’s required contribution for the calendar month for self-only coverage under the lowest cost plan offered by the employer that provides minimum value does not exceed 9.12% (in 2023) of the employee’s household income. [1] Wait, you say, we started at 9.5% in 2014, doesn’t it always go up with inflation? No, we answer. The annual adjustment reflects the ratio of the premium growth rate for employer-sponsored health coverage to the national income growth rate in the previous year.[2] Premiums didn’t grow as fast during COVID because many medical procedures were delayed or unavailable. It’s coming back with a vengeance in 2023, in part because care that was postponed (such as cancer treatment) led to worse outcomes in the longer term.

B-1. Overview. Whether coverage is “affordable” under the ACA’s affordability “safe harbors” is based on the salary or wages of individual employees. They ignore household income. Coverage is “affordable” if the cost of self-only (single) coverage is affordable under the safe harbor rules. The original rules provided that if single coverage was affordable for an employee, then family coverage was also affordable.[1] But the rules did not limit the employee’s share of premiums for family coverage. Why is that affordable, you ask? Because the government says it is affordable, we respond. They didn’t call it the Affordable Care Act for nothing.

Because spouses and children were “deemed” to have affordable coverage when an employee was offered affordable single coverage, so long as they had the option of “buying up” to family coverage, they were not eligible for premium tax credits or cost-sharing subsidies on the health care exchanges (including MNsure).  If they applied for premium tax credits though MNsure, they would be asked whether they were offered affordable coverage. If any family member of an employee who could elect family coverage was offered single coverage that was “affordable” under the ACA, the family coverage was “deemed” affordable to the applicant, and they were denied premium tax credits and other cost-reduction benefits through MNsure.

Policymakers called this the” family glitch,” as if it were an oversight. Others familiar with the legislative history of the ACA say it was included to keep down the score (the cost) of the bill. In 2021, the Kaiser Family Foundation estimated that 5.1 million people fell into the family glitch, and a majority of them were children.[2]

Whether coverage is “affordable” under the ACA’s affordability “safe harbors” is based on the salary or wages of individual employees. They ignore household income. Coverage is “affordable” if the cost of self-only (single) coverage is affordable under the safe harbor rules. The original rules provided that if single coverage was affordable for an employee, then family coverage was also affordable.[1]  But the rules did not limit the employee’s share of premiums for family coverage. Why is that affordable, you ask?  Because the government says it is affordable, we respond. They didn’t call it the Affordable Care Act for nothing.

Don’t get us wrong, fixing the Family Glitch is a big win for families whose household income entitles them to subsidies. But it does not mean that employers have to provide family coverage that is affordable within the meaning of the ACA.  Employees will still be ineligible for premium tax credits through MNsure if the employer provides single coverage that is affordable and meets minimum value.  And applicable large employers, at least, will still have to offer coverage that is affordable and meets minimum value to their full-time employees in order to avoid penalties under the ACA. 

As a result, we think that many families will purchase more than one insurance plan:  one for the employee through the employer, and one through MNsure for remaining family members. Families will have to navigate two sets of provider networkers and plan rules.  They will have to pay two insurance premiums and be subject to two sets of deductibles.  But MNsure’s premium tax credits and subsidies will offset most of the cost for most working families. 

Minnesota established MinnesotaCare in 1992 to provide state-subsidized coverage for individuals who earn too much to qualify for Medicaid, but whose incomes are below 200 percent of the federal poverty line. When the ACA was passed, MinnesotaCare was updated to qualify as a Basic Health Program (BHP) under the ACA. This permits it to receive federal subsidies comparable to premium tax credits available through MNsure. The program offers coverage comparable to a “silver” plan on MNsure, with low premiums, limited copays, and no deductibles. The average monthly enrollee premium in 2021 for MinnesotaCare was $29. But MinnesotaCare was not available to individuals who had access to family coverage through an employer, if the cost of single coverage from that employer was “affordable.”  The family glitch applied here too.

The correction of the Family Glitch has been supercharged by the expansion of premium tax credits and subsidies generally.  Under the ACA, premium tax credits and cost sharing subsidies were originally available on a sliding scale to people with income between 100% and 400% of the federal poverty line ($54,360 for an individual or $111,000 for a family of four in 2023).

The American Rescue Plan Act (ARPA) expanded premium tax credits in the health care exchanges (including MNsure) by eliminating the 400% limit and providing that no one pays more than 8.5% of their household income towards premiums for the cost of coverage through MNsure and other exchanges.[1] ARPA’s subsidy provisions were intended as COVID relief and set to expire at the end of 2022. But the Inflation Reduction Act of 2022 extended it for another three years. Once a ball like that gets rolling it’s politically unpopular to stop it, and we think it’s likely to be renewed after 2025. The 8.5% affordability percentage is a “cap” on the amount that persons with income of 400% or more of the federal poverty line must pay for coverage; persons who earn less than that amount pay less in premiums.

Under ARPA, as extended by the Inflation Reduction Act, people with income up to 150% of the federal poverty line can now get silver plans through health care exchanges for zero monthly premiums (and they also receive assistance with deductibles).[2] Because of age rating in the individual market, the new rules especially benefit older individuals.

Spraycan C. Deutsch takes a job as a full-time graphic artist and gardener for the city of Germanville. He is married with 6 children. All of his kids race motocross, and each breaks an average of 2 bones per year.

Germanville is an applicable large employer and offers group health plan coverage that is affordable (to employees who elect single coverage) and meets minimum value. The 12-month plan year runs from July to June of each year. Germanville uses the Federal Poverty Line (FPL) Safe Harbor.

D-1. Cash-in-Lieu and Death Spirals. Some employers offer cash-in-lieu of coverage or agree to those arrangements in collective bargaining agreements. They think that offering cash-in-lieu will reduce their costs by reducing the number of insured employees.

But the economics of insurance doesn’t work that way. Insurance means risk-shifting and risk-distribution. It doesn’t save employers money when they encourage healthy employees not to buy insurance. It takes away the premiums they would have received from healthy employees to help pay for sick employees.

We recently reviewed statistics on a public employer plan that covers almost 28,000 employees. Of that group, less than 1% of employees generated almost 50% of claims. Those employees will always enroll in the plan.  If healthy employees are given cash not to enroll in coverage, the pool of premiums from healthy employees will shrink, and the employer will have to pay more or raise premiums on those who remain.  That in turn encourages additional employees to take cash-in-lieu of coverage, which shrinks the pool of premiums from health employees even further and raises costs on those who remain. It’s called a death spiral, and we see this wherever we find cash-in-lieu arrangements.

D-2. Cash-in-lieu and Affordability Safe Harbors. But it’s a bigger problem for applicable large employers. Federal regulators understand the destructive nature of cash-in-lieu and adopted a rule to prevent it. To recap, under the Employer Shared Responsibility rule, applicable large employers must offer affordable coverage that meets minimum value to their full-time employees. To be affordable, the cost of coverage may not exceed 9.5% of the employee’s household income (9.12% in 2023). If an employer with a calendar year plan uses the Federal Poverty Line Safe Harbor in 2023 (more on that below), employees may not be required pay more than $103.28 per month for self-only coverage.