Biden administration officials reportedly are exploring whether they can use the regulatory process to “fix” the so-called family glitch in the Affordable Care Act to extend ACA premium tax credits to some employees’ family members who currently are not eligible.
But Galen Senior Fellow Brian Blase explains both why the Biden administration lacks the legal authority for such a fix as well as the significant adverse consequences if such a fix were to be deployed in a new paper, “A Biden Administration Regulatory ‘Fix’ to the ‘Family Glitch’ Would Be Illegal and Harmful.”
He explains that many workers and their family members would lose employer health insurance as companies have new incentives to drop coverage, leaving the exchanges as the primary option for coverage. The costs to taxpayers would be enormous. In addition, employers could face greater and more complex mandate penalties.
Under current law, if an employer offers an employee coverage that Obamacare deems affordable—premiums for a self-only plan are no more than 8.5% of household income—then neither the employee nor his or her family are eligible for premium tax credits in the ACA exchanges.
Media reports suggest that Biden political appointees may be pushing career officials to revisit the definitive conclusion they arrived at during the Obama administration that such a “fix” could not be accomplished without legislation.
Like the Obama administration, the Biden administration does not have the authority to address the family glitch through regulation. It is up to Congress to decide the policy considerations and tradeoffs in making such a “fix.”
Besides being illegal, there would be significant negative consequences of an administrative fix:
Businesses, families, and taxpayers would be harmed
- Businesses that currently offer family coverage would have strong incentives to either stop offering coverage or to make family coverage unaffordable.
- Federal budgetary costs would soar as millions more flock to the exchanges for subsidized coverage, especially if the temporary open-ended income eligibility were made permanent.
- Employers could be forced to collect information about total household income, a privacy invasion.
- Businesses would face new and more complicated employer penalties.
Significant Litigation Risk
- Employers who would be subject to penalties under a new interpretation will be harmed and will almost certainly bring suit.
- A new interpretation would give individuals who were harmed by the previous interpretation cause to sue and potentially gain compensation. The IRS and Treasury are loathe to open the door to this type of lawsuit.
- Fewer than one in 10 of the 5.1 million people who fall into the family glitch are uninsured. Thus, “fixing” the family glitch would cause millions to replace their current private spending on insurance with massive taxpayer-funded subsidies, adding even further to federal entitlement expenditures.
The Obama administration faced significant political pressure to “fix” the family glitch and the IRS and Treasury conducted a thorough review of the issue. But even though it stretched and sometimes disregarded the statute in implementing the ACA, the IRS and Treasury determined that “affordability” is based on self-only coverage and issued rules confirming that.
The “family glitch” is not a glitch at all but rather the only valid conclusion of a proper legal and policy review of the statute. Obamacare contained a firewall between affordable employer coverage and PTC eligibility so that people who were offered affordable workplace coverage would not be eligible for a PTC. This was primarily to keep the cost of the program in check and avoid people ditching employer coverage for a heavily subsidized exchange plan if the employer provided coverage.
Basing PTC eligibility on the affordability of self-only coverage kept the cost of the program below the threshold President Obama required, reduced disruption of popular employer coverage, and avoided broadening the employer mandate penalties.