On June 5th, a new bill was introduced which aims to expand the Affordable Care Act's tax credit eligibility to working families. The Family Coverage Act would fix what is referred to as the 'family glitch'.
The bill seeks to amend the IRS guidelines of "affordable" job-based coverage, to allow an employee's dependents access to premium tax credits if the cost of family coverage offered by an employer is greater than 9.5% of household income.
Background on the Tax Credit 'Family Glitch'
Under current regulations, whether an employee's family is eligible for premium tax credits is based only on the affordability of single-coverage, not on the cost of family coverage.
So, if the cost of employer-sponsored family coverage is prohibitive for the family, but the employee-only premium portion is defined by the IRS as affordable, federal tax credits are not available to family members.
This creates a gap for many working families. According to the Kaiser Family Foundation, total premiums for employer-sponsored health insurance in 2013 averaged $5,884/year for individual coverage and $16,351/year for family coverage. The employee’s share of the premium averaged $996/year for individual coverage and more than four times as much, $4,560/year for family coverage.
By the current definition, paying $4,560/year for family coverage would be considered affordable for a family making $35,000 a year, even though the family would have to spend 13% of its income for full family coverage under the employer’s plan. As the law stands now, this family would not be eligible for premium tax credits.
