Even financial advisors and planners who don’t sell insurance need some understanding of the various life and health insurance products, and how they affect clients’ success metrics.
While advisory clients often receive health insurance through employers or Medicare and supplemental insurance, some families may be newly eligible for coverage through the Affordable Care Act.
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Beginning in January 2023, there’s a big change to the ACA that advisors should learn about: A new rule that eliminates the “family glitch.” This term refers to a rule implemented in 2013 that bases eligibility for ACA premium subsidies on the affordability of employer-sponsored insurance for the employee only, and not his or her family.
Going forward, public exchange programs in the states will evaluate the coverage needs of the entire family when deciding whether group coverage is affordable and whether family members are eligible for an ACA premium tax-credit subsidy.
Here’s how advisors can guide clients through the process of deciding whether ACA family health insurance is their best choice:
— How the ACA family glitch rule change affects financial planning.
— Calculating eligibility for ACA subsidies.
— Details count with the ACA family glitch rule change.
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How the ACA Family Glitch Rule Change Affects Financial Planning
Because health care coverage is such a large expense, it needs to be included in the financial planning process, says Jody D’Agostini, advisor at Equitable Advisors in Morristown, New Jersey.
“I deal with many divorcing couples, and the coverage for them as singles or as parents with children often comes up,” she says. “I like to be able to guide them to the right resources to make an informed decision.”
She adds that now is a good time for advisors to revisit whether elimination of the family glitch will improve the situation for some clients and their families.
“The change is not effective until 2023, but the current open enrollment makes this available and should be considered. This may allow families that were previously not eligible for subsidies to become eligible,” D’Agostini says. “If an employee is deemed to have affordable health coverage, nothing will change, but if the employer-sponsored family coverage is not, then they might be eligible for subsidies through the marketplace.”
Andrew Latham, a certified financial planner and certified financial counselor, and managing editor at Supermoney.com, said it’s incumbent upon planners to understand the eligibility requirements of ACA subsidies. This knowledge of the ACA’s rules becomes crucial when advisors are providing detailed advice to middle-income clients, as well as high-income clients who have children or extended family that qualify for ACA subsidies, Latham says.
But he adds that clients, too, should understand how ACA rules affect their situation.
Calculating Eligibility for ACA Subsidies
“I recommend that everyone calculates the percentage of income they spend on health insurance premiums when creating or reviewing a budget,” Latham says. “You may be surprised that your family qualifies for substantial health care subsidies.”
Worker employer-sponsored plans are considered unaffordable if the premiums constitute more than 9.61% of their income in 2022, Latham says. For 2023, the affordability threshold will be lowered to 9.12%.
Latham notes that the average family of five pays around $2,400 in premiums for a Silver middle-tier plan on the ACA exchange.
The IRS has cited studies that estimate between 600,000 and 2.3 million individuals could become eligible for coverage through the exchange due to the rule change. Between 80,000 and 700,000 previously uninsured individuals could gain coverage because of the modified rule.
The ACA has changed the landscape for advisory clients, while also creating a new set of opportunities for advisors, says Brian Greenberg, CEO and founder of Insurist in Scottsdale, Arizona.
“One of the most common questions I get from clients is whether or not they should include their children or extended family in their health insurance plan if they don’t qualify for ACA subsidies,” Greenberg says. The answer, he adds, is yes.
Typically, an advisor can only give advice to clients. However, it’s not uncommon for clients to ask advisors for general information that pertains to adult children, parents or other family members.
“The rule allows advisors to help their clients’ extended families with general, non-specific advice informally,” Greenberg says. “In other words, you can answer questions about what your client’s family members should be doing to prepare for retirement or how they can save money on their health insurance premiums without violating any laws.”
Details Count With the ACA Family Glitch Rule Change
Greenberg cautions that advisors must consider all the moving parts to the family glitch rule change when working with clients on this aspect of their plan. What’s right for one family is not always right for another, depending on the details of their situation.
“For example, if your client has low-income status but lives in a state that didn’t expand Medicaid, they may be eligible for an Advanced Premium Tax Credit instead of the cost-sharing reduction benefit,” he explains.
When an individual applies for coverage in the health insurance marketplace, he or she estimates expected income for the year. Those who qualify for a premium tax credit based on that estimate may use some amount of that credit in advance to lower the premium.
The cost-sharing reduction lowers the amount an individual pays for deductibles, copayments and coinsurance.
Greenberg points out that advisors and clients must be aware of income thresholds that must be met before qualifying for any subsidy at all.
“This means you have to consider whether or not your client meets these criteria before advising them on how best to use their subsidy,” he says.
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The ACA ‘Family Glitch’ Rule Change: What Advisors Need to Know originally appeared on usnews.com
