Even with the Affordable Care Act, health insurance coverage for many families may remain unaffordable
Because employers would not be incentivized to offer affordable family coverage under the IRS’s interpretation, Volk said, “you may have three family members each getting coverage from three different sources, and paying the premiums associated with all of them.”
For a family of four with a household income of $40,000 a year, for example, individual coverage for each spouse through separate employers could cost as much as $3,800 a year before the employer would be subject to a penalty. When premiums owed for the coverage for any children are added in, the total cost to the family could easily approach $8,000 a year, or 20 percent of family income.
— JoAnn Volk, Georgetown University
“I don’t know of many families that would call 20 percent of their income an ‘affordable’ amount to pay for health insurance,” Volk said.
Carla Saporta, the health policy director of the Greenlining Institute, a research and advocacy group focusing on racial and economic justice, added that for many families, “even 9.5 percent of income is not a realistic measure of how much people can afford.”
The Administration has yet to announce whether an employer’s failure to offer workers the opportunity to get affordable insurance for their family members means that those family members will be eligible for subsidies to buy individual insurance through an insurance exchange (see box below). Even if they will be deemed eligible, those subsidies would likely not cover the entire cost of purchasing insurance, so families could still end up paying far more than 9.5 percent of their income on insurance premiums.
Conflicting goals
The proposed rule does not represent the Administration’s final interpretation of the law, though most advocates do not expect significant changes to the provisions regarding employer coverage of dependents and spouses.
Several officials in the Obama Administration did not respond to requests for comment on the consequences of its proposed rule. Many advocates for expanding health insurance coverage said that the Administration could certainly argue that the employer-sponsored system is being improved insofar as larger employers will have more incentives under the ACA to provide some health insurance to workers.
But, according to Shana Alex Lavarreda of UCLA, the questions raised by the IRS’s interpretation of the employer mandate demonstrate that the goal of giving all Americans access to quality, affordable insurance is in tension with the Administration’s desire to limit the burden that the ACA places on employers.
“The problem,” she said, “is that when you try so hard not to put too much of a burden on employers, it increases the risk that some of the gaps in that system won’t get filled.”
Some families may be stuck “in limbo”
Under the ACA, tax credits to offset the cost of purchasing insurance on the individual market are generally available to employees and their dependents who have a household income of less than $92,200 (400 percent of the current federal poverty line) and who are not offered “affordable” coverage through an employer. Affordable coverage is understood be to coverage that does not exceed 9.5 percent of household income.
But costs attributable to whose coverage cannot exceed 9.5 percent of household income? If the Administration defines affordability for tax credit purposes in the same way it defined the scope of required affordability for purposes of the employer mandate, then it will only look at whether a worker’s individual insurance cost is no more than 9.5 percent of household income, regardless of how much more expensive the family plan offered by the employer may be.
In that interpretation, the affordability of a worker’s “self-only” coverage would render that worker’s dependents ineligible for tax credits.
According to Cheryl Fish-Parcham, deputy director of health policy at Families USA, a patient advocacy group in Washington, if the Administration goes that route, millions of dependents could be stuck “in limbo” between an offer of employer-sponsored coverage that they can’t afford and insurance on the individual market, for which they will not be eligible for subsidies.
“That could put families in a very bad position,” Fish-Parcham said. “Many families may decide not to buy insurance at all because neither option is affordable for them.”
A 2011 analysis by the Kaiser Family Foundation found that there are nearly four million non-working dependents in families in which the worker has access to affordable employer-sponsored coverage but the family does not.
Many advocates have argued that the ACA should be interpreted as allowing the dependents of employees to be eligible for tax credits to buy insurance through the exchange if the family coverage offered by the employer costs more than 9.5 percent of household income.
“It makes no sense not to apply the [affordability] standard to family coverage,” said Ed Walz, the vice president for communications at First Focus, a child advocacy group. “That’s like assuming that when a parent goes grocery shopping, they are only going to want to buy groceries for themselves and not their kids.”
Allowing tax credits when the family coverage offered by an employer is prohibitively expensive, however, could substantially increase the total cost of the ACA to the government, something some advocates fear the Administration is looking to avoid.