Can Clinton Really Fix the Glitch?

How changing the definition of "affordable" would leave employees--and employers--in a lurch

Hillary Clinton has made fixing the "family glitch" part of her presidential healthcare platform, but she doesn't outline a plan for solving the Affordable Care Act quirk that leaves millions of people unable to access health insurance subsidies.

There are only a few conceivable ways that the issue could be resolved, and each comes with its own consequences. Before digging into solving the "family glitch," let's cover exactly what it is.

What is the "family glitch"?

The "family glitch" issue centers around affordability, and who is deemed eligible to receive subsidies for health insurance purchased on the exchange.

It works like this--health insurance subsidies are not available on the exchange to people who have affordable insurance at their jobs. Whether a plan is considered 'affordable' is based on the cost of the "employee only" coverage tier of the least expensive plan option.

If the cost for "employee only" coverage is less than 9.66 percent of the employee's household income, the plan is considered affordable. When that is the case, neither the employee, his or her spouse nor their children can access subsidies on the marketplace.

This means that even if the cost of the "employee + family" coverage tier is really expensive, the spouse and children still are not eligible for subsidies.

This is what Clinton refers to as the "family glitch."

Example of the "family glitch"

Let's look at an example to help clarify this a bit further.

John and his wife Jane have a household income of $60,000. John has access to health insurance at his job at ACME Construction, and for "employee only" coverage, it costs $1,800 per year. This is 3 percent of his household income, so the federal government considers it "affordable" coverage. This means John's family is not eligible for subsidies on the marketplace.

But Jane works part-time and doesn't have access to health insurance at her job, so John's plan covers her and their two children as well. The cost of the family plan is $12,000 per year -- 20 percent of their household income.

Jane and the kids are not able to access cheaper coverage because the government doesn't look at the cost of family coverage in determining affordability. They are caught in what Clinton calls the "family glitch."

Possible Solution Number One

One way to fix the family glitch would be to simply change the barometer of affordability, and base it on the full cost of the family plan.

This was the idea of a bill proposed by Senator Al Franken, called the Family Coverage Act. It would have changed the definition of affordable coverage, but the bill died in Congress in 2014.

Had it passed, it would have opened up more families to subsidies and by doing so, would have triggered more penalty payments from employers.

Why is that? Because employers with more than 50 employees are required by the ACA to provide affordable coverage or pay a fine. If the IRS used the cost of family coverage to determine what is "affordable," many more plans would be considered unaffordable, and more employers would have to pay the fine.

The government made a big deal of promoting the fact that most employers would not be subject to fines. Fixing the glitch in this way would change that. It seems unlikely that our next president would choose to do something that would cause massive new penalties for our country's employers. That leads us to possible solution number two.

Possible Solution Number Two

To improve access to subsidies without changing the definition of "affordable," the government would have to change the rules that govern subsidy eligibility.

One way to do this would be to allow some family members to access subsidies even if one family member has access to affordable coverage at work. Families can already have two or more health plans, but allowing multiple subsidy determinations in one family could maintain employer coverage for Mom or Dad while still helping the spouse and kids who are currently caught in the family glitch.

Let's use our previous example to explain how this would work. John could drop family coverage, just choosing the "employee only" coverage tier through his employer. Jane and their children could access subsidies for cheaper insurance on the exchange. If they were eligible for enough in subsidies, the cost of marketplace insurance and John's workplace plan could be less than the $12,000 they currently spend on a family plan.

There are a few problems with this solution. One is that it would discourage employers from paying anything towards coverage tiers other than "employee only." The other is that the resulting increase in the number of people eligible for subsidies would be extremely costly for the government.

Either approach to fixing the family glitch will have consequences. If the government decides to change how affordability is determined, there could be a massive dropping of plans from the nation's employers. But allowing families to access both workplace insurance and subsidies would be drastically more expensive.

That's why--for now at least--the family glitch is likely to remain just as it is.