Marketplace Subsidies: Changing The ‘Family Glitch’ Reduces Family Health Spending But Increases Government Costs

Under the Affordable Care Act, if one family member has an employer offer of single coverage deemed to be affordable-that is, costing less than 9.66 percent of family income in 2016-then all family members are ineligible for tax credits for Marketplace coverage, even if the cost of providing coverage to the whole family is greater than 9.66 percent of income. More than six million people live in such families and as a result are ineligible for premium tax credits. These families face premiums that can amount to 15.8 percent of income, or 12.0 percent after the tax advantages of employer-sponsored health coverage are factored in. We modeled the potential impact of changing the affordability test to take into account the cost of family coverage. Doing so would reduce spending on premiums from 12.0 percent to 6.3 percent of income, significantly alleviating financial burdens, but would generate little additional coverage. We estimated the additional costs to the federal government for premium tax credits and cost-sharing reductions to be between $3.7 billion and $6.5 billion in 2016.