How Extending ACA Premium Tax Credits May Fix the Family Glitch

By making all family members eligible for marketplace premium tax credits with the exception of those who have access to affordable coverage individual health insurance marketplace premiums may decline and access to coverage would increase, a recent Urban Institute study found.

According to current regulations, there are certain restrictions on who can receive premium tax credits. Among those qualifications, the law stipulates that members of the family must not have access to an affordable employer-sponsored health plan.

“Under current rules, employer-sponsored insurance is deemed affordable if the cost of employee-only coverage is no more than 9.83 percent of family income in 2021,” the brief summarized.

“All family members are ineligible for PTCs to purchase Marketplace coverage if just one family member has an affordable offer of coverage (and family coverage is available) from an employer. This is the case even if the cost of coverage for the whole family is greater than 9.83 percent of family income.”

The researchers used the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM) to model the impact of extending premium tax credits to all family members that do not have access to affordable coverage.

The results showed that newly eligible families who were formerly on employer-sponsored health plans would spend approximately $1,028 less per eligible family member in premium dollars.

These savings would be offset in part by the loss of their tax advantage through their employer-sponsored health plans, resulting in a net savings of around $403 per family member.

The savings would be most significant for low-income families, with those at 200 percent of the federal poverty level saving on average $580 per person.

“Those gaining eligibility for PTCs would not necessarily be better off taking them. That depends on the amount of PTCs available at their income level, the cost of single coverage for the worker with an affordable offer, the tax advantage of financing the family’s health coverage through an employer, and the difference in out-of-pocket health costs for the family,” the researchers acknowledged.

Approximately 4.8 million individuals would become eligible for premium tax credits.

Slightly more than 84 percent of the dependents who would receive premium tax credits would have the opportunity to switch to the individual health insurance marketplace from an unaffordable employer-sponsored health plan. This data syncs with similar reports on the subject.

Almost 10 percent of the dependents who became eligible (9.6 percent) would otherwise be uninsured. Similar reports have suggested that solidifying financial support for the Affordable Care Act might cause uninsurance to drop as much as 14 percent.

Slightly more than three percent would be switching from short-term limited-duration health plans. A small portion would already be in a nongroup health plan that was less affordable than the plan with premium tax credits.

Most of the dependents who would gain more affordable coverage through premium tax credits would be minors. Slightly more than 45 percent of the newly eligible dependents would be between 0 and 18 years old.

One in five of the dependents who gained eligibility would be between 35 and 54 years of age. Nearly a quarter of them (23.6 percent) would be between the ages of 19 and 34 years old.

Around 3.6 million people who are connected to these eligible individuals would not qualify for premium tax credits due to other affordable coverage opportunities.

Still, enough eligible individuals might switch to produce minor shifts in premium costs in the marketplace, with on average a one percent decrease in premiums for nongroup premiums nationwide.

Private nongroup enrollment would increase by 0.2 percentage points, insured employer-sponsored coverage would decline by 0.2 percentage points. Medicaid and Children’s Health Insurance Program (CHIP) enrollment would increase by 93,000 beneficiaries and the uninsured population might shrink by 0.1 percentage point.

This policy would boost federal spending by $3.0 billion in premium tax credits alone and heightened Medicaid enrollment would boost federal spending by another $349 million.

A number of funding streams could offset some of that spending. Uncompensated care would drop by $192 million. Federal tax revenue would get a boost from the drop in employer-sponsored coverage.

Ultimately, balancing the spending and savings, federal spending would increase by 0.6 percent

“In summary, changing the family glitch would lower health care premiums for hundreds of thousands of affected families without undermining employer coverage,” the study concluded.

“There would be a modest increase in health coverage, but the biggest effect would be to improve affordability. There would be a small increase in federal government spending and a tiny increase in state spending that would be at least partially offset by additional tax revenue.”