When Your Employer's Family Coverage Costs Too Much

The problem in one example

This is an example with round, made-up numbers. An employer charges $100 a month for employee-only coverage and $1,400 a month to cover the employee, a spouse and two kids. The employee-only price looks great. The family price is $16,800 a year. That is more than many families spend on their car payments and groceries combined.

This pattern is common. Employers usually pay a large share of the employee's premium and a much smaller share for dependents. The question is whether your spouse and kids can do better somewhere else while you stay on the job plan.

What the family glitch was

Before 2023, the Marketplace tested whether job-based coverage was affordable using only the cost of covering the employee. In the example above, $100 a month passed easily. Because the employee's coverage counted as affordable, the whole family was locked out of Marketplace tax credits, even though covering them cost $1,400 a month. People called it the family glitch.

The 2023 fix

Final Treasury rules published in October 2022 changed that for 2023 and later years. You can read them in the Federal Register. Now there are two separate tests.

• For the employee, affordability is still measured on the cost of employee-only coverage.
• For the spouse and children, affordability is measured on what the employee would pay to cover the whole family.

So in the example, the employee still can't get a tax credit, because $100 a month is affordable. But the spouse and kids are tested on $1,400 a month, and that may not be affordable. If it isn't, they can qualify for a Marketplace tax credit while the employee keeps the job plan. The job-based plan also has to meet a minimum value standard for family members, and if it doesn't, they can qualify that way too. HealthCare.gov's job-based coverage page walks through these choices.

The 2027 affordability percentage

For 2027, job-based coverage is considered affordable if your share of the premium is no more than 10.22 percent of household income. The IRS set that figure in Revenue Procedure 2026-26, up from 9.96 percent for 2026.

Here is how it works with round numbers. A household earning $100,000 hits the line at $10,220 a year, or about $852 a month. If the employee's cost for family coverage is more than that, family members fail the affordability test and can look at Marketplace credits. In the example, $1,400 a month is well over the line.

The income limit that catches many families

There is a second test, and in 2027 it matters a lot. With the enhanced subsidies gone, Marketplace tax credits stop at 400 percent of the poverty level. For 2027 that is $109,280 for a family of three and $132,000 for a family of four.

So the family glitch fix only helps if your household income is under that line. A family of four earning $150,000 can fail the affordability test and still get no tax credit, because they are over the income limit. For them, a Marketplace plan is full price. The subsidy cliff guide explains this in detail. That is where a private plan for the family often comes in.

Option 1: Spouse and kids on the Marketplace

If family members fail the affordability test and your income is under the line, you can keep yourself on the job plan and enroll your spouse and children in a Marketplace plan with a tax credit. Some things to watch:

• Timing. Open enrollment for 2027 coverage runs November 1, 2026 to January 15, 2027, and you need to enroll by December 15 for a January 1 start. Your employer's open enrollment is often earlier, so drop dependents at work only once the Marketplace plan is lined up.
• Changing midyear. Employers are allowed to let you drop family members midyear so they can join a Marketplace plan, under IRS Notice 2022-41. Your employer has to have adopted that option, so ask HR.
• Two deductibles. You and your family will be on two plans with two deductibles and two out-of-pocket limits. For 2027, Marketplace family out-of-pocket limits can reach $24,000.
• Paycheck premiums. Job-based premiums usually come out of your paycheck before taxes. Marketplace premiums don't, though the tax credit can more than make up for it. General information, not tax advice — confirm with your CPA based on your specific entity structure.

Option 2: A private plan for your family

If your income is over the subsidy line, or your family is healthy and the Marketplace plans in your area are narrow HMOs, a private, medically underwritten plan is worth pricing for your spouse and kids. Private plans are priced on age, zip code and health, not income, so the subsidy cliff doesn't matter. If approved, coverage can start on the first of an upcoming month, so you don't have to wait for open enrollment.

The trade-off is underwriting. Each family member answers health questions, and the insurer can decline someone or exclude a condition. A family can also mix: a healthy spouse on a private plan and a child with an ongoing condition on a Marketplace plan. The family health insurance guide covers how families put this together, and the spouse under 65 guide covers a spouse on their own plan.

Option 3: Ask your employer about an ICHRA

Some employers, especially smaller ones, offer an individual coverage HRA instead of a traditional group plan, or alongside it for certain classes of employees. The employer gives you a set monthly allowance, and you use it to buy individual coverage for yourself and your family. HealthCare.gov's ICHRA page explains the basics.

ICHRA affordability works differently from a group plan. It is generally tested on what the employee would pay for the least expensive silver plan after the allowance, and the family glitch fix did not change that. If the ICHRA is affordable for you, your family members generally can't get a Marketplace credit either. The ICHRA guide has the details.

Option 4: Keep everyone on the job plan

Sometimes the expensive family plan is still the right answer. If someone in the family has a serious condition, sees specialists regularly or is in the middle of treatment, a stable group plan with one deductible may be worth the price. Compare the full-year cost, not just the premium. Keeping everyone together also means one deductible, one network, one card and one set of paperwork, which counts for something with young kids. The point is to make the choice on purpose, with the numbers in front of you, rather than by default.

Mistakes that cost families money

• Never checking. Many families assume that because the employee is offered coverage, nobody in the family can get help. Since 2023, that is often wrong.
• Dropping dependents at work too early. If the Marketplace or private plan isn't confirmed, your family can end up with a gap. Line up the new plan first.
• Guessing at income. Marketplace credits are based on your income for the year. Estimate too low and you may repay part of the credit when you file.
• Forgetting the out-of-pocket side. A smaller premium with a much higher deductible can cost more in a year with a lot of care.
• Leaving out a sick family member's needs. A plan that works for a healthy spouse may not work for a child who sees a specialist every month. Different family members can be on different plans.

How to run the numbers

1. Get the employee-only and family premiums from HR, along with your plan's summary of benefits.
2. Estimate your household income for the coming year.
3. Multiply that income by 10.22 percent and compare it with the annual family premium.
4. Check whether your income is under the 400 percent line for your family size.
5. Price a Marketplace plan and a private plan for your spouse and kids.
6. Compare full-year totals: premiums plus a realistic out-of-pocket amount.

How I help

I'm licensed in Florida, Georgia and 29 other states. Send me your employer's rates and your household size, and I'll run the affordability test and show you the Marketplace and private options for your family side by side. Request a quote and we'll go over it by phone or video. There is no fee for my help.