On April 7, the Biden administration fulfilled a promise to extend health insurance coverage to family members of individuals offered expensive health insurance through an employer.
Following Biden's executive order earlier this year directing the Treasury Secretary to review all regulations and agency actions so that they were consistent with strengthening the ACA, the IRS issued a proposed rule to change its interpretation of the Affordable Care Act's provision that family members of employed individuals cannot qualify for premium subsidies in the ACA marketplace if the employee has an offering of affordable "self-only" coverage from his or her employer. This prevailing interpretation, in place since 2013, has become known as the "family glitch" by advocates since it often prevents family members of employees from obtaining affordable coverage.
Dueling interpretations of the law
Under the administration's proposed rule, spouse and dependent eligibility will be determined by the affordability of the employee's share of "family" coverage. Many advocates seeking to expand coverage under the ACA welcomed the news of the proposed rule as a long-overdue change to making health insurance more affordable for families. To justify the change, supporters say the IRS is simply choosing a second but equally valid interpretation of the law, citing the Supreme Court's Chevron and Auer deferences that give federal agencies power to interpret their own regulations.
Critics contend that the Biden administration's new rule interpretation is wrong because the plain reading of the statute and regulations requires the original interpretation to stand. They also cite circumstances of the ACA's passage, including Obama's desire to limit the cost of the bill as well as keeping the interpretation in place through both of his terms.
The policy change may benefit hundreds of thousands of families, especially large families with lower incomes. The White House estimates that 200,000 uninsured individuals will obtain coverage, while around one million will switch from employer-sponsored plans to more affordable individual market plans. On the other hand, other estimates indicate the net benefits of the change are more muted; the Urban Institute's simulation of a fix similar to the proposed rule shows a similar number of uninsured would obtain coverage, but just over 600,000 additional people would obtain more affordable coverage than they have now.
The many costs of the ‘fix’
Despite the benefits of the policy and the administration's confidence in its legality, the proposed rule comes with potential problems.
First, while it is understandable that Biden used his executive power in light of several failed legislative attempts to fix the family glitch, executive orders and regulatory interpretations can be reversed by the next administration.
Then there is the cost. The estimates vary widely depending on underlying assumptions of individual family choices and circumstances. The Urban Institute estimated a cost of $2.6 billion annually, while the Congressional Budget Office scored a similar legislative proposal in 2020 that estimated $45 billion over 10 years—$4.5 billion annually. And since Biden’s proposed rule bypasses Congress through the regulatory process, there’s no plan on how to pay for it.
Biden's fix for the family glitch also leaves employees themselves with fewer options. Absent passing a law on subsidy eligibility, the Biden administration had to leave the subsidy eligibility for the employee in place; therefore, employee eligibility will still depend on the employee's share of self-only coverage. As a result, many families could end up having two separate insurance plans with different provider networks, deductibles, co-pays, and out-of-pocket maximums.
Other concerns remain. Employers are worried that risk pools for employer-sponsored insurance will get sicker as younger and healthier family members leave for ACA plans. On the other hand, many working families are excluded from affordable health insurance options because of the family glitch. Often, employers offer only one health plan option, with ever-increasing premiums, deductibles, and out-of-pocket maximums.
In helping some families now, Biden's regulatory fix amplifies the larger problem of America's misdirected system of health insurance subsidies. For example, the tax exclusion for employer-sponsored health insurance subsidizes coverage for the wealthy who pay higher income tax rates. In addition, Medicare generously subsidizes health care for wealthy individuals with the greatest ability to pay on their own.
Without more affordable options, the result of the nation's regressive insurance subsidy scheme is predictable. Since 2018, the average American family pays a greater share of household income on hospital care alone than federal taxes.
The need for a legislative solution
Though ACA subsidies are imperfectly designed, a legislative fix that includes both the employee and his or her family members would move in the right direction by allowing more Americans to gain access to affordable health insurance coverage as complete household units. The Fair Care Act of 2020, sponsored by Rep. Bruce Westerman (R-Ark.), addresses the family glitch by allowing employees and families to choose between an employer plan or a subsidized marketplace plan without restriction. The bill would reduce the deficit by more than $150 billion over 10 years by maximizing patient choice through market-based policies that increase insurance coverage while also reducing health care costs.
Biden's proposed fix to the family glitch may work in the short term, but lawmaking through executive order and regulatory interpretation is vulnerable to policy reversals in subsequent administrations. A legislative fix would permanently increase the number of insured in a fiscally sustainable way, while also providing needed assistance to millions of the under-insured struggling to make ends meet.