May 11, 2022
In 2022 for the first time since the Affordable Care Act’s inception, the threshold for employers to be able to use the federal poverty line (FPL) affordability safe harbor fell for calendar year plans. Many employers utilize the FPL affordability safe harbor as it can allow them to utilize the 1A code on line 14 of the Form 1095-C which in turn allows them to leave lines 15 and 16 of the Form 1095-C blank. As a result, employers who were toeing the line to be able to use the FPL affordability safe harbor needed to take action to adjust down the employee’s share of the premiums for health coverage. The question this article explores is what employers who sponsor non-calendar year plans can do if their plan’s premium payment structure was already set up.
For example, suppose an employer sponsored a non-calendar year plan. The 2021 plan year runs from November 1, 2021 to October 31, 2022. Suppose the employer charged employees $104.53 per month for self-only coverage for the 2021 plan year which runs to October 31, 2022. This decision had to be made prior to November 1, 2021 as a result of the non-calendar year status of the plan and the need to make timely offers and get the necessary individuals enrolled. The question is does this create any issues for using the FPL affordability safe harbor?
The best place to begin is to look at the details of how the maximum monthly contribution threshold for the FPL affordability safe harbor are set. There are two variables that determine what the maximum monthly contribution threshold for the FPL affordability safe harbor will be each year. The first variable is the federal poverty line number. The second variable is the affordability threshold. Both of these numbers are adjusted year-to-year.
As the chart below demonstrates, until 2022 the maximum monthly contribution rate had continuously increased each year for calendar year plans.
|Calendar Year||FPL Six Months Prior to Calendar Year||Affordability Percentage||Maximum Monthly Contribution|
However, in 2022 due to the significant decrease in the affordability percentage compared to 2021, the maximum monthly contribution fell for the first time for calendar year plans. The IRS released the significant drop in the affordability percentage from 9.83 percent to 9.61 percent on August 30, 2021 in Revenue Procedure 2021-36. Revenue Procedure 2021-36 states “For plan years beginning in calendar year 2022, the Required Contribution Percentage for purposes of § 36B(c)(2)(C)(i)(II) and § 1.36B-2(c)(3)(v)(C) is 9.61%.” The term plan year in the previous sentence is critical.
The final regulations define the term “plan year” at 54.4980H-1(a)(35). Those regulations state a plan year must be 12 consecutive months, unless a short plan year of less than 12 consecutive months is permitted for a valid business purpose. A plan year is permitted to begin on any day of a year and must end on the preceding day in the immediately following year. It is important to note that the plan year is different than a calendar year. Almost all of the literature and charts on the FPL affordability safe harbor online discuss the topic in terms of calendar year plans. However, the regulations are clear the plan year is the proper way to assess the FPL affordability safe harbor for each plan.
As discussed above, the employer in the example has a plan year for 2021 that runs from November 1, 2021 to October 31, 2022. The 2022 plan year runs from November 1, 2022 to October 31, 2023. Therefore, the employer can utilize the 9.83 percent affordability threshold for its entire 2021 plan year which coincides with the 2022 calendar year. For the months of January 2022 through October 2022 the appropriate affordability threshold is 9.83 percent as those months are associated with the employer’s 2021 plan year. For the months of November 2022 and December 2022 the appropriate affordability threshold to use for this employer is 9.61 percent as those months are associated with the employer’s 2022 plan year.
The term federal poverty line is also defined in the final regulations at 54.4980H-1(a)(19). The definition states that an employer can use any of the poverty guidelines in effect within six months before the first day of the plan year of the applicable large employer member’s health plan, as selected by the applicable large employer member. The most up to date federal poverty line numbers were published by the Department of Health and Human Services in the Federal Register on January 21, 2022. That federal poverty line number for a single individual was $13,590.
As a result of the employer in the example above having a 2022 plan year beginning on November 1, 2022, the employer would be able to utilize the $13,590 number when calculating the maximum monthly contribution for the 2022 plan year. Similarly, the employer would be able to utilize the $12,880 federal poverty line number when calculating the maximum monthly contribution for the 2021 plan year.
The chart below calculates the maximum monthly contribution threshold for the employer in the example with a 2021 plan year that runs from November 1, 2021 to October 31, 2022.
|Plan Year||FPL Six Months Prior to Plan Year||Affordability Percentage||Maximum Monthly Contribution|
For the months of January 2022 to October 2022, which would still be the 2021 plan year for the employer, the maximum monthly contribution to use the FPL affordability safe harbor would be $105.50. For the months of November 2022 and December 2022, which would be the 2022 plan year for the employer, the maximum monthly contribution to use the FPL affordability safe harbor would be $108.83.
As a result of the affordability percentage being tied to the plan year and the employer being able to use the federal poverty guidelines in effect within six months before the first day of the plan year, the maximum monthly contribution for non-calendar year plans can be different compared to calendar year plans. This allows non-calendar year plans to have the proper tools to be able to set a premium price for employees that will be compliant with the FPL affordability safe harbor. If you have any questions or you would like assistance with reporting the Forms 1094-C and 1095-C to the IRS, please 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.
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