The public comment period recently closed on a proposed Treasury and Internal Revenue Service (IRS) regulation that would fix the so-called “family glitch” that affects families receiving an offer of employer-sponsored health insurance (ESI) and potentially eligible for premium tax credits (PTCs) under the Affordable Care Act (ACA).
While some policymakers who want to fix the family glitch may be well-intentioned in trying to adjust a clear technical flaw with the ACA, Treasury’s authority to do so through regulation is questionable at best. Furthermore, NTU believes few changes with as large a budget impact as fixing the family glitch (increasing deficits potentially tens of billions of dollars over a decade) should be addressed solely through regulation rather than in partnership with Congress.
Brief Background
The Kaiser Family Foundation offered a helpful summary of the family glitch matter in an April 2021 issue brief:
“…people can qualify for ACA Marketplace subsidies if their employer requires them to spend more than 9.83% of his household income on the company’s health plan premium.
Currently, this affordability threshold of household income is based on the cost of the employee’s self-only coverage, not the premium required to cover any dependents. In other words, an employee whose contribution for self-only coverage is less than 9.83% of household income is deemed to have an affordable offer, which means that the employee and his or her family members are ineligible for financial assistance on the Marketplace, even if the cost of adding dependents to the employer-sponsored plan would far exceed 9.83% of the family’s income. This definition of ‘affordable’ employer coverage has come to be known as the ‘family glitch.’”
According to a May 2021 Urban Institute report, around 4.8 million people would be newly eligible for PTCs if policymakers fixed the family glitch. This aligns with a 2022 Biden White House fact sheet, which estimated that the glitch “affects about 5 million people.” Democratic lawmakers and left-of-center policy experts have advocated for legislative and regulatory fixes to the family glitch for years. House Democrats actually included a permanent family glitch fix in their ACA “enhancement” legislation they voted on in 2020.[1]
Given legislative efforts have failed in Congress – and given that Democratic lawmakers have not included family glitch fixes in larger partisan legislation like the American Rescue Plan Act (ARPA) or the Build Back Better Act (BBB) – the Biden administration is now attempting a fix through regulation.
Regulation is the Wrong Path for a Fix to the Family Glitch
Even where policymakers and policy experts might agree that the family glitch is a policy problem – and where some might argue that it was the result of sloppy or rushed lawmaking during consideration of the ACA – a regulatory fix is the wrong path forward for an issue with as large a budget impact as the family glitch.
The nonpartisan Congressional Budget Office estimated that the family glitch fix in House Democrats’ 2020 ACA enhancement legislation would increase deficits by $45 billion over 10 years:
The deficit impact of the regulatory fix is likely smaller than this CBO estimate, in part because the CBO estimate includes interactions with Democrats’ proposals – in the same 2020 legislation, H.R. 1425 – to permanently expand ACA subsidies. Fixing the family glitch, in isolation, would almost certainly increase deficits, but doing so in conjunction with expanded premium tax credit (PTC) subsidies would increase deficits even more.[2]
While the law may not prohibit a regulatory fix to a legal issue solely because of its potential deficit impact, NTU firmly believes that a reform matter with significant federal spending implications belongs foremost in the legislative branch rather than the executive branch.
What’s more, most of the deficit impact from the family glitch would go towards families that already have health coverage, but would be receiving more generous PTC subsidies under the fix. Even the White House estimates that only 200,000 who would otherwise be uninsured would gain coverage under their proposed regulation. Compare that to:
- 31.5 million people uninsured according to 2020 estimates from CBO;
- 25.3 million people uninsured and not already eligible for Medicaid (also via CBO);
- 22.5 million people uninsured, not eligible for Medicaid, and lawfully present in the U.S. (also via CBO);[3] and
- Five million people currently affected by the family glitch, according to the White House.
According to the Biden administration’s own estimates, only a fraction of the people affected by the family glitch (one million out of five million) would even see their costs go down, and around four percent of those affected (200,000 out of five million) would otherwise be uninsured.
With federal dollars preciously limited, and in a time of historic debt and deficits, taxpayers would be right to question if regulators should commit tens of billions of deficit-financed dollars to potentially covering only four percent of those covered by the family glitch and only around half a percent of the total uninsured population.
Potential “New and Impermissible Reading of the Statute”
Also potentially at issue in the proposed regulation is a “new and impermissible reading of the statute,” according to Galen Institute Senior Fellow Doug Badger, Paragon Health Institute Brian Blase, and numerous other health care experts, according to a recent letter they filed with Treasury and the IRS.
Badger, Blase, and their co-signers write in part:
“The statute's clarity forecloses the agency's new claim of ambiguity. The new and impermissible reading of the statute is inconsistent with the agency’s past rule and raises the specter that a new administration in the White House can pressure the IRS to alter its enforcement of the tax code in a manner that advances its political interests. Moreover, the agencies ignore that Congress has for more than 12 years refused to amend section 36B in the way the agencies now seek to unlawfully amend it through regulation. Congressional inaction does not empower the agencies to act. On the contrary, it further confirms that the proposed rule is unlawful. The agencies should withdraw it.”
While NTU has not vetted the legal considerations of the proposed rule as closely as these health policy experts, the concerns they outline in their comments to Treasury and the IRS are well worth reading for anyone following this issue.
Conclusion
If policymakers wish to fix the family glitch, they should do so in the halls of Congress, where taxpayers’ elected representatives can debate the policy tradeoffs and spending considerations. NTU would also insist that any legislative fix to the family glitch come with spending offsets elsewhere in the federal budget. Any fix should be deficit neutral and demonstrate a modicum of respect to taxpayers, who will one day have to pay the enormous debt America has accrued in recent decades (and especially during the COVID-19 pandemic).
What policymakers across the ideological spectrum should agree on is that a regulation that potentially increases federal spending (and deficits) by tens of billions of dollars should be off the table.
[1] The bill, H.R. 1425, was not considered by the Senate, held by Republicans at the time. See here for H.R. 1425 text and here for a section-by-section summary.
[2] Fixing the “family glitch” likely raises mandatory federal spending on PTCs (since more individuals would be eligible for PTCs) and on Medicaid (since some families who seek PTCs on the individual marketplace would be automatically informed they are eligible for Medicaid), while also increasing federal tax revenues (since individuals would move from ESI, which is usually covered with pre-tax dollars, to the ACA marketplaces, which consumers pay for with a mix of PTCs and post-tax earnings). Both CBO and the Urban Institute appear to estimate that increased federal spending will outpace increased tax revenues, thereby raising deficits. For more, see the Urban Institute’s May 2021 report here.
[3] People not lawfully present in the U.S. are not eligible for PTCs.