Small businesses struggling to offer health insurance to their employees just got a break from President Joe Biden. Biden recently signed an executive order that effectively eliminates the widely criticized “family glitch” flaw in the 2010 Affordable Care Act (ACA), thus making it possible for many small business employees who are insured through their employer to obtain coverage for their family members as well. 

The Glitch

Under the ACA, employees and family members were not eligible for a premium tax credit to buy subsidized coverage on the ACA’s health insurance marketplaces if the employee has access to “affordable” health insurance provided by an employer. Affordable was defined as self-only coverage that did not exceed 9.61% of the employee’s income. 

If that was the case, the employee could not get premium tax credits to buy supplemental insurance for his or her family members through the ACA marketplace. This was referred to as the “family glitch” in the ACA and was put in place during President Barack Obama’s administration because Congress did not want to exceed $1 billion in tax credits for the ACA. 

“For family members of an employee offered health coverage through an employer, the cost of that family coverage can sometimes be very expensive and make health insurance out of reach,” according to a statement from the Internal Revenue Service. “The family glitch affects about 5 million people and has made it impossible for many families to use the premium tax credit to purchase an affordable, high-quality marketplace plan.”

The Fix

Biden’s executive order, issued April back on 6, means that spouses and family members will be eligible for premium tax credits to buy into a plan on the ACA marketplace even if the employee’s health insurance plan is considered “affordable insurance.” In other words, family members of workers that are offered health insurance by their employer will now have an affordable way to be insured.

During an April 5 announcement by the White House, spouses and family members of an employee were sometimes paying 20% to 25% of their incomes on health insurance as a result of the family glitch. 

“Family members may choose to stay in the coverage that they’re in today because they find it more convenient to have their whole family in a single health plan,” according to the White House statement. “But others, and the people for whom this is the greatest hardship, will [be able to]… switch from the coverage that they have today into more affordable marketplace coverage.”

What Does This Have to do With Small Businesses?

The executive order has been hailed by the US SBA and small business associations such as The Small Business Majority (SBM) because it will help small businesses that do offer healthcare plans to retain and hire valuable employees by letting them know that their entire family can get covered in an affordable manner. 

Offering affordable insurance to employees, especially for businesses with just nine to 20 employees, has been one of the biggest worries for small businesses, as offering comprehensive health insurance is often a crucial employee perk used to attract job candidates. 

According to a recent survey of 827 small businesses from Small Business for America’s Future, more businesses (55%) are worried about the costs of providing health insurance to their employees than they are about the dangers of COVID-19 (37%). The study also found that 76% of small business owners do not provide coverage because the cost is too high, while 53% of small business owners said they do offer insurance but are considering dropping it because of rising costs. 

Roughly 90% of small business owners said their health insurance costs increased over the past four years, with 40% responding that costs have risen by 10% or more a year. Small business owners also said that competing with large companies for talent is made more difficult by the fact that larger companies can more easily afford to offer comprehensive health benefits to prospective candidates. 

“We are glad that the Biden Harris Administration is taking steps to fix the so-called ‘family glitch’. By fixing the family glitch, more small business owners, their employees, and their families will be able to access and afford coverage…we know that many small businesses want to offer affordable healthcare benefits but can’t afford to do so. Indeed, our research has found that healthcare costs are one of the biggest challenges for small businesses. More than 1 in 3 small businesses said they have struggled to obtain health insurance coverage for themselves and their employees during the pandemic. Fixing the family glitch will help many in the small business ecosystem by allowing more individuals to switch to ACA Marketplace coverage with premium assistance.”

What SMB Owners Should Do

The executive order means that small business owners should focus on educating their employees on what their options are now that the executive order has passed. Whether you offer a premium plan through an outside insurance carrier, or a self-funded plan that employees contribute to, you should instruct them on what their options are in the ACA Marketplace and give them a sense of relief by letting them know that their family members can get affordable coverage.