The Affordable Care Act has many moving parts, and not to be overlooked is the annual inflation-adjusted shift in what constitutes “affordable” health care coverage.
For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if an employer’s required contribution for self-only coverage for the least expensive plan option that meets ACA requirements does not exceed 9.56% of the employee’s household income for the year (down from 9.69% in 2017).
As you probably already know, since employer’s don’t know their employees’ household incomes, the ACA created a safe harbor in which any of the following can be used in lieu of household income:
- The employee’s W-2 wages – as reported in Box 1 – generally as of the first day of the plan year
- The employee’s rate of pay – hourly wage X 130 hours, as of the first day of the plan year.
- The individual Federal Poverty Level (FPL) – since the FPL isn’t published until January, employers can use the FPL in effect 6 months prior to the beginning of the plan year. For 2018, the maximum monthly premium contribution that meets the FPL safe harbor will be 9.56% of the prior year’s federal poverty level ($12,060 in most states for 2017) divided by 12 or $96.08.
The applicable large group employer may use one or more of these safe harbors as its option but only if the employer offers 95% of its full time employees and their dependents the opportunity to enroll in coverage that provides minimum value for the self-only coverage offered to the employee. You may choose to use one safe harbor for all employees or use different safe harbors for employees in different categories, provided the categories are reasonable and the employer uses one safe harbor on a uniform and consistent basis for all employees in a particular category. Common categories are salary versus hourly employees.
Employers should consider the adjustments to the affordability contribution percentage in developing a contribution strategy. Check your 2018 premiums to prevent any affordability issues and adjust as needed. You can make changes in favor of lower paid employees without having to change every employee’s contribution level.
Employees may be eligible for a premium tax credit to purchase health coverage through the ACA’s public health care exchanges if, among other things, they are not offered affordable coverage through an eligible employer plan that provides minimum value. If a benefits eligible employee qualifies for a premium tax credit, the employer penalty for the 2018 plan year is $3,480. This amount is divided by 12 and is payable for each month in the calendar year the employee is eligible for benefits and receiving the tax credit.
For more information:
RHSB Vice President Benefits Services & Compliance Director