Despite all the efforts to repeal the Affordable Care Act (ACA), employers should know that the ACA employer mandate remained in full force in 2018 and for now, will remain so in 2019 and beyond. A key component of that employer mandate is offering affordable healthcare coverage to eligible full-time employees.
Affordable Healthcare Coverage Defined
Under the ACA, ALEs (Applicable Large Employers) must periodically (usually monthly) offer at least 95% of their eligible full-time employees quality health insurance coverage, and fulfill all ACA reporting requirements around that, or risk paying penalties.
Qualifying plans must offer:
Minimum Essential Coverage (MEC)
Minimum Value (MV): the plan must pay at least 60% of the costs of covered benefits
Affordable Coverage: A plan is considered affordable if the employee’s required contribution for the lowest cost self-only health insurance option offered by the employer does not exceed 9.56% of the employee’s household income. This applies even if the employee selects a different health insurance coverage option.
Note: The IRS adjusts this amount annually based on the federal poverty line %: The 2019 ACA affordability percentage will be going UP to 9.86%!
Each of these requirements has its own intricacies, so it’s best to consult with a knowledgeable insurance broker before choosing a plan for your company. They will be able to tell you if the plan meets MEC and MV standards.
Let’s dive a little deeper on the affordability aspect of these plans.
What is “Affordable?”
When applying ACA tax regulations to Tax Year 2018, “affordable” means that the employee’s share of self-only health coverage cannot exceed 9.56% of household income.
The ACA affordability percentage is written in the Internal Revenue Code as 9.56%, but subsequent IRS guidance hinted at adjustments for inflation and sure enough:
So, one way to do ACA affordability calculations in 2019 is: for 2019 calendar-year plans using the federal poverty level (FPL) safe harbor (see below) to determine affordability, an employee's premium payment can't exceed $99.75 per month, up from $96.08 per month in 2018.
The 3 Affordability Safe Harbors for Employers
Since employers often don't know their workers' household incomes, the IRS allows the employer to use one or all three of these tests for affordability, any of which can be used in place of household income:
W-2 Wages safe harbor
Rate-of-Pay safe harbor
Federal Poverty Line (FPL) safe harbor
Just one safe harbor per plan. Employers with multiple plans can apply different safe harbors to different plans – they need not be identical.
If an employee’s share of the premium for the lowest cost self-only option offered by the employer is more than 9.56% (2018) or 9.86% (2019) of his or her household income, the coverage is not considered affordable for that employee and the ALE member may be liable for an employer-shared responsibility penalty under Section 4980(b) if that employee obtains a premium tax credit for health coverage purchased through the marketplace.
The original $3,000 amount associated with this penalty has been adjusted each calendar year after 2014.
In 2016, the penalty was $3,240 per employee per year.
In 2017, the penalty was $3,390.
In 2018 the penalty amount is $3,480.
In 2019, the penalty amount will just go up again – actuaries estimate the amount will be $3,750 per employee per year.
Note that this is the penalty for not offering affordable coverage and that this penalty applies to all employees, not just the one that was not offered affordable coverage!
There are other ACA penalties:
Penalties for not offering MEC and MV coverage
Reporting penalties for not documenting ACA compliance
Employers need to keep a close eye on employee contributions (or the relative share of plan cost reflected in employee contributions) in 2018 and 2019 to maintain “affordable” coverage under the ACA.
Employers should also consider the affordability standard in developing their 2019 health care plan cost-sharing strategies. The significant increase for 2019, compared to 2018, provides an employer that is being compliant with the ACA affordability percentage an opportunity to increase the price of its health insurance while continuing to provide affordable coverage.
Integrity Data can guide you in understanding the ACA employer reporting requirements for 2019 (and all prior years), including how to test for affordability and avoid costly penalties.
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