The Doughnut Hole of Obamacare

Posted: September 19, 2013

How the ACA May Force Spouses and Children into Un-Affordable Health Care

By John Hansen

The Affordable Care Act insures “affordable” health insurance for employees, but not necessarily for the employees’ spouses and children. This doughnut hole in Obamacare is commonly referred to as “The Dependent Gap”.

The Problem of “The Dependent Gap”
Brokers at recent Covered California Trainings across California have been asking this question: What about the spouses and children? Here’s the problem. If employees are offered “affordable coverage”, meaning coverage that costs them less than 9.5% of their income, then these employees are ineligible to get a tax credit if they decide to purchase individual coverage from Covered California. That’s not surprising, but what is shocking to many Californians is that these employees’ spouses and children are also ineligible to get a tax credit for coverage purchased from an plan through Obama Care California.

The All Too Common Worst Case Scenario
My friend Pedro is a stay-at-home Dad. His wife, Talia, gets employer-sponsored coverage, which requires her to fork out just over 9% of her paycheck. Affordable for her? Technically yes. But because Talia has “affordable coverage” through her employer, this means that Pedro and the kids will have to pay full price for their health insurance coverage.

Even if family purchases a Bronze plan for Pedro and the kids, the family premiums will easily be over 20% of Talia’s income. And what makes this all the more bitter of a pill to swallow, is that if Pedro and the kids don’t purchase this coverage, which is clearly unaffordable, they may face penalties due to the mandate, and the penalties are the greater of $95/person ($47.50/child) or 1% of their income.

But my employer doesn’t contribute towards dependents’ premiums?
This is the worst case scenario. No contributions from the employer and no subsidy from the government. The fact that your employer does not contribute toward dependents’ premiums does not make the dependents eligible for a subsidy.

What if my employer doesn’t offer dependent coverage?
Good news! If your employer doesn’t offer dependent coverage, then your spouse and children may be eligible for a subsidy if they purchase coverage through Covered California. In light of this fact, it may be a big help to employees if their employers either start contributing for dependent coverage or drop coverage for dependents.