We were talking with a client last week about her health insurance situation, and it inspired me to do a little more digging around to see how eligibility for subsidies could be impacted by the availability of employer-sponsored health insurance. In our client’s situation, she’s a homemaker and her husband makes about $20,000 per year, working for a small business. They also have a child, who is currently covered by Medicaid. Her husband can get health insurance from his employer for $75/month. But if he adds his wife, the cost goes up to $500/month. $6,000 per year for health insurance when you earn $20,000 isn’t really a viable option. Fortunately, as of January 2014, Medicaid will be available in Colorado to families with household incomes up to 133% of FPL (in 2013, that’s almost $26,000 for a family of three).
But let’s consider a hypothetical family that makes a little more – say $28,000/year – and has the same option for employer-sponsored health insurance. They would be above the cutoff for family Medicaid, but well below the 400% of poverty level that determines eligibility for premium assistance tax credits (subsidies) in the exchange (400% of FPL for a family of three is a little over $78,000 in 2013). And I think we can probably all agree that spending $6000 a year on health insurance would be a significant burden for a family that earns $28,000 a year.
We’ve all heard lots of talk about how subsidies are available in the exchanges for people who don’t have access to “affordable” employer-sponsored health insurance. I think most of us take that to mean that for families who earn less than 400% of FPL, subsidies are available both to those without an option to purchase employer-sponsored health insurance, and for families that have the option to do so but at a prohibitively high premium. You’ve probably also heard that the cutoff for determining whether employer-sponsored health insurance is “affordable” is 9.5% of the employee’s wages.
Unfortunately, it’s not as simple as it might sound, and the official rules might leave some families without a lot of practical options. I discussed this scenario last week with the Colorado Coalition for the Medially Underserved (CCMU). Gretchen Hammer is the Executive Director of CCMU, and she’s also the Board Chair of Connect for Health Colorado (the state’s exchange), so there’s a good flow of information between the two organizations. CCMU (and Connect for Health Colorado, via CCMU) responded to my questions quickly and thoroughly, and I highly recommend both sources if you’re in Colorado and curious to see how your specific situation will be impacted as the ACA is implemented further (here’s contact info for CCMU and Connect for Health Colorado).
My concern in the case of our hypothetical family was that the employee’s contribution for his own health insurance is $75/month, which works out to only 3.2% of his income – well under the threshold for “affordable,” based on the 9.5% rule. And as I discussed recently in my post about the employer shared responsibility for large employers, it’s the employee’s contribution for employee-only coverage that is taken into consideration to determine whether coverage is “affordable,” regardless of what type of coverage the employee actually has (ie, in addition to employee-only coverage, there are usually options for family coverage, employee + spouse, or employee + children, all of which generally mean a higher payroll deduction for health insurance coverage).
In our hypothetical family, the father works for a small business, so the employer isn’t required to offer health insurance at all (although there are tax credits that might help them do so). They’re obviously funding a good portion of the employee’s coverage, and they may be funding a portion of dependent coverage. But even so, $500/month is more than 21% of this family’s income. And unfortunately, as it stands now, the wife would not be eligible for subsidized health insurance coverage in the exchange because she has access to employer-sponsored health insurance, and the cost for the employee’s coverage is less than 9.5% of the household income. So even if the husband can get affordable health insurance from his employer and the child can get coverage through Medicaid or CHP+, the wife would have no options other than paying full price for individual health insurance (since no subsidy would be available), accepting the employer-sponsored coverage through her husband’s job, or going uninsured [the upside is that she wouldn't face a penalty in that situation, although that's a pretty weak consolation prize. EDIT: to clarify this point, the IRS ruling includes the following sentence (midway down the first column on the second page): "for purposes of applying the affordability exemption from the shared responsibility payment in the case of related individuals, the required contribution is based on the premium the employee would pay for employer-sponsored family coverage"]. She will almost certainly find that even without a subsidy, an individual plan is far less expensive than the $425 it would cost to add her to her husband’s plan at work. But even a bronze plan will likely be a couple hundred dollars a month, which is a lot more than she would pay if she could get a subsidy based solely on her household income.
The IRS ruling that set the “affordability” guideline at 9.5% of income for just the employee’s coverage, regardless of what coverage is actually selected was just released earlier this year, so it’s possible that there will be alterations to fix what some have described as a “family discrimination provision.” (if your family might be impacted by this ruling you may want to contact your elected representatives and express any concerns you have). For years, we’ve been helping families look for individual health insurance in exactly this sort of situation: one spouse has low-cost coverage through a job, but adding the family to the plan is too expensive. And there are likely to be plenty of families who find themselves not eligible for subsidies – despite having incomes under 400% of FPL – because they technically have access to group health insurance, even if the total cost of the family’s coverage is far more than 9.5% of household income.
It’s unlikely that this was a simple oversight, because the IRS ruling is very clear on this point and even notes that there was some controversy about whether or not to base the 9.5% affordability threshold on the portion that the employee pays for self-only coverage or family coverage (see the first column on the second page). Ultimately, they settled on the cost to the employee for self-only coverage. I imagine this would seem very counter-intuitive to most people, especially those who have employer-sponsored health insurance and opt to pay additional premium in order to add their family members to their policy. But for now, that’s the way it is. We wanted to clarify this point in case our readers and clients had questions.