Affordability Exemptions and the Family Affordability Glitch for 2017 Plans
Below we present the affordability exemptions for 2017 for employer and non-employer coverage and explain the family affordability glitch.
I’ll start by saying in basic terms, for 2017:
- If the cheapest employer plan per-member or marketplace plan for the family costs more than 8.16% of household income for the year, the member or family qualifies for an exemption from the fee.
- If the cheapest employer plan costs more than 9.69% for self-only coverage for the employee, then that family can use marketplace and is eligible for cost assistance.
TIP: The numbers change each year, see IRS Releases 2017 ACA Required Contribution Percentages for more information.
Below are all the details pertaining to the above two statements.
NOTE: All the points below pertaining to employer coverage generally apply to employee-only coverage, the coverage of an employee’s dependent’s or spouse’s self-only coverage, and the aggregate price of coverage for one or more dependent or spouse (the average price for one or more dependents, not the combined price, and not including the employee). Meanwhile, all the points applying to non-employee coverage apply to individual plans and family health plans on the marketplace and not to specific family members.
- If the minimum amount you would have paid for employer-sponsored coverage or a bronze level health plan on your state’s official health insurance marketplace is more than a certain percentage (8.16% for 2017) of your actual household income for the year as computed on your tax return, then you are exempt from the monthly fee for not having coverage. The fee is known as the individual mandate penalty or the individual shared responsibility payment.
- The above exempts employees and their families, but it does not allow them to use the marketplace.
- If the minimum amount you would have paid for employer-sponsored coverage is more than a certain percentage (9.66% for 2017) of your actual household income for the year as computed on your tax return, then you are exempt from the fee and can apply to use the marketplace and get tax credits. This typically requires the employer to fill out an “employer coverage tool” and employee to fill out an “employee coverage tool.”
- It is important to note that there is a thing called “the Family Affordability Glitch” regarding spousal and dependent coverage on employer health plans. This “glitch” describes the fact that employers don’t need to pay a portion of a dependent’s premium; there is a gap between the 8.16% and 9.69% exemptions; and that the exemptions for employee’s dependents look at self-only or aggregate coverage for non-employee family members and not at just the family rate. This leads some families to either owe high rates or to be exempting from coverage, while not qualifying for marketplace assistance. It is well documented that this is confusing. None-the-less. it’s generally the case. It’s likely that, in 2017 Trump and Congress will address this issue, but it hasn’t happened yet.
- The above is complicated by the fact that all of this needs to be calculated well before taxes are filed for 2017 and the calendar year has ended in many cases. Due to this, many will need to project their income to see if they qualify for an exemption from the fee and to use the marketplace in advance. If your projections are off, you may still be liable for the fee. Exemptions based on projections are only granted by the marketplace, while exemptions officially taken at tax time based on actual income can be taken directly on your taxes using form 8965.
- Thus, if you are very confident you’ll be exempt, you can wait until you file to do the paperwork. Otherwise, and I would suggest this for everyone, it would be easier to coordinate this with HealthCare.Gov or your state’s marketplace.
- 8.16% and 9.69% are the key numbers. To be exempt as a non-employee the lowest cost bronze plan in your region must exceed these rates; to be exempt as an employee it must be self-only coverage after the employer’s contribution. Calculations for the dependents and spouse of an employee are a bit more complicated, but generally they have to be individual only or an aggregate of two or more individuals.
- Remember, if you have a different health plan than your family you’ll be up against two separate deductibles and maximums. Also, keep in mind that going without coverage means risking big costs in the case of a catastrophic accident.
Learn more from HealthCare.Gov.
TIP: A person can shop wherever they want for 2017 coverage if they aren’t going to access subsidies that includes the marketplace. However, to get cost assistance the above rules apply.