August 31, 2017
Open enrollment season is fast approaching so every employer will need to begin to finalize the prices of the plan or plans that it will offer its employees. In order to avoid a potential section 4980H(b) penalty an employer must make sure one of its plans provides minimum value and is offered at an affordable price. An actuary will determine whether the minimum value threshold has been satisfied and this is generally not an issue for employers. However, an employer is in control as to whether the plan it is offering meets the affordability threshold.
As explained thoroughly in our previous publication, a plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014 and up until 2018 the number has slowly increased. In 2015 the affordability threshold was adjusted to 9.56 percent. Then in 2016 the affordability threshold increased again to 9.66 percent and again in 2017 to 9.69 percent. However, for the first time, the affordability threshold has decreased in 2018 all the way back to 9.56 percent. The significant drop in the affordability threshold compared to 2017 places employers who are toeing the line of the affordability threshold in danger of being subject to a potential section 4980H(b) penalty if the price of coverage is not reduced for self-only coverage.
An employer wishing to use one of the affordability safe harbors will use the 2018 affordability threshold of 9.56 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.56 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.
The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.56 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.56 percent of the employee’s monthly salary.
The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.56 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2018 is $12,060. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $96.08 in order to satisfy the federal poverty line safe harbor.
Every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above. This is particularly important for the 2018 calendar year as the affordability threshold is lower in 2018 compared to 2017. Should you have any questions on determining the affordability of a plan or any other questions related to the Forms 1094-C and 1095-C, please don’t hesitate to contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2017 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.