Although the healthcare coverage debate rages on in our nation’s capital, the Affordable Care Act (ACA) is still the law of the land. It is important that employers remain vigilant in their ACA compliance efforts. In particular, the “affordability standard” is a component of ACA that has been frequently overlooked. Employers should be reassessing their employee contribution structure annually to ensure compliance and avoid costly penalties.
In order to determine affordability, the IRS sets an “affordability percentage” annually. The affordability percentage is applied to the employee’s annual household income and the result is divided by 12 in order to determine the maximum “affordable” monthly contribution. Coverage is deemed to have met the ACA’s affordability standard if the employee cost for the lowest-priced self-only coverage available does not exceed the calculated affordable contribution. Other available plan options and rate tiers are not taken into account. Because the ACA recognizes that employers are unlikely to know their employees’ household incomes, a safe harbor was created which allows employers to use any of the following in lieu of the household income:
- The employee’s wages as reported in Box 1 of the prior year’s W-2
- The employee’s hourly rate of pay multiplied by 130 hours
- The Individual Federal Poverty Level (FPL)
For plan years beginning in 2017 the affordability percentage is 9.69%; however, the percentage has been lowered to 9.56% for plan years beginning in 2018. The FPL has also risen ($12,060 in most states), so the maximum monthly contribution using the FPL method will be approximately $96.08 in 2018, up from $95.93 in 2017. Because affordability calculations have many moving parts regardless of the safe harbor method that is used, MCG encourages all employers subject to the ACA’s employer mandate to reevaluate their employee contribution structure annually to ensure compliance with the most current affordability standards.
MCG continually monitors current and developing law as it pertains to our clients and their health plans. We review our clients’ contribution structures for affordability each plan year.
Questions? Please feel free to contact me – MCG is here to serve you!