Under the law, most Americans will be required to have health insurance starting next year. Low- and middle-income people can get tax credits to help them pay premiums, unless they have access to affordable coverage from an employer.
The law specifies that employer-sponsored insurance is not affordable if a worker’s share of the premium is more than 9.5 percent of the worker’s household income. The I.R.S. said this calculation should be based solely on the cost of individual coverage, what the worker would pay for “self-only coverage.”
Tim Ricchuiti is a schoolteacher in Dallas and had read a previous Health Reform Watch where I noted that employees who were offered insurance plans that met “coverage and affordability requirements” by their employers would not be eligible for tax subsidies on the health exchange.
“The ‘those that meet the coverage and affordability requirements’ that’s giving me trouble,” he wrote in an e-mail. “Next year, my school district (I’m a teacher working for Dallas ISD) will offer a plan I could use to cover my family of three; but it would cost about $1,000 a month (that’s after the district contribution of $300, which is standard for all employees), or about 25 percent of my salary.”
So, Ricchuiti’s question is this: “Will my family be eligible for subsidies? And if so, can I only access them if I sign up for a health exchange plan?”
And the answer is “most likely not”.
As Sarah Kliff explains, if Ricchuiti’s plan alone is deemed affordable, then the remainder of his family is NOT eligible for a tax subsidy when purchasing an ACA plan through the health exchange.
What is the definition of affordability?
In January, it issued guidance that said the health law would use the cost of an individual policy to determine whether an employer had exceeded the 9.5 percent threshold. This has been worrisome to consumer advocates, mostly because of cases like Ricchuiti’s, where a family policy could eat up a big chunk of household income.
So Ricchuiti has two choices:
- Add his family to his school districts group plan at a total cost of $1300/mo of which $1000 comes out of his pocket
- Only Ricchuiti sign up for his group plan and the remainder of his family can purchase a plan either on the exchange or off the exchange. Since there is no tax subsidy available, there is not an advantage of purchasing a plan on the exchange.
- There may be a 3rd option of the entire family purchasing an ACA plan on or off the exchange. There will still be no subsidy available if Ricchuiti has an affordable group plan available to him.
Why would the Obama administration/IRS rule against families like this?
There was a lot riding on how the administration decided to define the 9.5 percent threshold, whether it would use an individual or family plan as the standard. Economist Richard Burkehauser wrote a paper in 2011 estimating that, if the Obama administration went with the family-based definition, it could mean an additional $48 billion in federal subsidies as many Americans would not have their policies counted as affordable.
That’s right, $$$$’s, $48 billion of them.