CMS Responds to Wyden on Resolving the Family Glitch
WASHINGTON – Despite the Administration’s effort to provide states with greater flexibility to allow employees to shop for health insurance using employer contributions, U.S. Sen. Ron Wyden says millions of workers’ dependents will still be left without options for affordable family health coverage.
“Without action, millions of hard working Americans are going to be squeezed by the family glitch,” Wyden said. “Many people will be left with a false choice of taking family coverage through work they can’t afford or struggling to find a better plan in the exchange without a subsidy.”
At a Senate Finance Committee hearing last month, Wyden pressed Gary Cohen, Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight (CCIIO), Centers for Medicare and Medicaid Services (CMS) on ways to address the needs of families affected by the family glitch. Cohen agreed to respond in writing.
In January 2012, the Internal Revenue Service (IRS) created the so-called “family glitch” when it ruled that workers will be ineligible for federal tax credits to help them purchase coverage on the health insurance exchanges, which start in 2014, unless the cost of the individual employer-based health coverage premium exceeds 9.5 percent of a worker’s household income. This strict ruling ignores the fact that family coverage is much costlier, leaving many workers of modest means to choose between family coverage they cannot afford or going without.
In response, CMS wrote to Wyden saying that “we are working with states to give them flexibility in the design and operation of their Marketplaces to best meet the unique needs of their citizens.” Toward that end, CMS pointed to the Small Business Health Options Program (SHOP), a program that is limited to small businesses.
“Under employee choice, an employer picks a metal level of coverage (bronze, silver, gold or platinum) and defines a contribution towards its employees’ coverage; an employee then will apply that employer contribution toward the premium for the SHOP plan of his/her choice,” CMS wrote.
Wyden said, “Even in the states that allow for employee choice, it will be limited to a small number of workers. SHOP exchanges will not solve the family glitch.”
With the SHOP exchange, “employee choice” would provide a similar, but very limited, version of Wyden’s Free Choice Vouchers (FCV), which were eliminated from the health care reform law by the continuing budget resolution passed by Congress in April 2011. With the FCV, if an employer offered family coverage that an employee with a family simply could not afford, they would have the option of taking the employer contribution and shopping for a policy that could better meet their family’s needs on the health exchange.
Kaiser Family Foundation has estimated that there could be as many as 3.9 million dependents that will be affected because an employer’s individual coverage choice was considered affordable but the family plan is not.
A Kaiser Family Foundation survey published last year found that employees’ annual share of insurance premiums averaged $951 for individual coverage and $4,316 for family coverage. The lowest income workers would generally be eligible for Medicaid, and the higher income workers are unlikely to have to pay more than 9.5 percent of their income for insurance. The ruling would largely hit people with incomes under three times the poverty level - $67,050 for a family of four in 2011.
The full response to Wyden from CMS is here:
As you know, on April 14, 2011, Congress passed the Department of Defense and Full-Year Continuing Appropriations Act, which was signed into law by President Obama on April 15, 2011. Section 1858 repealed section 10108 of the Affordable Care Act regarding free choice vouchers.
While the Department no longer has the authority to implement section 10108 of the Affordable Care Act, we are working with states to give them flexibility in the design and operation of their Marketplaces to best meet the unique needs of their citizens.
We agree that employee choice is very important. In 2014, employers in every state who purchase coverage in the small group market will be able to purchase coverage through a Small Business Health Options Program (SHOP) in that state and, if eligible, claim a tax credit to help coverage be more affordable. To provide additional time to prepare for an employee choice model and to increase the stability of the small group market while providing small groups with the benefits of SHOP in 2014, we recently proposed a transitional policy under which a SHOP would have full flexibility in determining the methods by which an employer could offer coverage to employees for plan years beginning in 2014. For plan years beginning on or after January 1, 2015, each SHOP would be required to enable an employer to offer employees a choice among all qualified health plans (QHPs) at one level of coverage and would have the flexibility to provide additional methods to offer coverage. This transitional policy would provide issuers with more time to build the systems needed to support employee choice while still providing employers with the benefits of SHOP in 2014 (such as a choice among competing QHPs and access for qualifying small employers to the small business health insurance tax credit). For plan years beginning in 2014, the Federally-facilitated SHOP would assist employers in choosing a single QHP to offer their qualified employees.
Following the transition, the Federally-facilitated SHOP will continue to allow small employers to offer a single QHP, but it will add the option of employee choice. Under employee choice, an employer picks a metal level of coverage (bronze, silver, gold or platinum) and defines a contribution towards its employees’ coverage; an employee then will apply that employer contribution toward the premium for the SHOP plan of his/her choice. In addition, the SHOP will perform premium aggregation further reducing burden on small employers. This will allow qualified employers to receive a single monthly bill for all QHPs in which their employees are enrolled and to remit a single monthly amount to the Federally-facilitated SHOP. The Federally-facilitated SHOP then aggregates premium payments from qualified employers and distributes the payments to the appropriate QHP issuers.