Employers should not overlook the Affordable Care Act’s (ACA’s) annual inflation-adjusted shift in cost-sharing limits for group health plan coverage, as they could face steep penalties for failing to provide affordable coverage under the ACA’s shared-responsibility provisions.
The IRS announced in Revenue Procedure 2018-34 the 2019 shared-responsibility affordability percentage. Based on the ACA’s affordability standard as adjusted for inflation, health coverage will satisfy the requirement to be affordable if the lowest-cost self-only coverage option available to employees does not exceed 9.86 percent of an employee’s household income, up from 9.56 percent in 2018. This information will help you as you plan for 2018-2019 renewals.
For 2019 calendar-year plans using the federal poverty level (FPL) safe harbor to determine affordability, an employee’s premium payment can’t exceed $99.75 per month, up from $96.08 per month in 2018. Many employers use the FPL safe harbor to develop employee contributions for self-only coverage to avoid ACA penalties under Section 4980H(b).
“Using the FPL safe harbor also simplifies ACA reporting and coding of Form 1095-C,” which plan sponsors file with the IRS for each employee offered ACA-compliant health coverage, wrote Richard Stover and Leslye Laderman, consultants with Conduent HR Services, in their recent analysis.
Affordability Safe Harbors
Since employers don’t know their workers’ household incomes, to which the affordability threshold applies, the ACA created three safe harbors, any of which can be used in place of household income:
- The employee’s W-2 wages—as reported in box 1—generally as of the first day of the plan year (see IRS Questions and Answers).
- The employee’s rate of pay—hourly wage rate multiplied by 130 hours per month—as of the first day of the plan year.
- The individual federal poverty level as of six months prior to the beginning of the plan year, since the FPL isn’t published for a given year until January.
The IRS can impose a shared-responsibility penalty when an employer with 50 or more full-time or equivalent employees—known as an applicable large employer (ALE)—”fails to offer minimum essential coverage to substantially all of its full-time employees and their dependent children during a month and at least one full-time employee receives a premium tax credit” through the ACA’s public marketplace exchange. An ALE satisfies the “substantially all” standard for any given month if it offered coverage to at least 95 percent of its full-time employees and their dependent children during that month.
For 2019, Stover and Laderman noted that actuaries estimate that the Section 4980H(b) penalty for failure to offer affordable, minimum-value coverage will be $3,750 per employee (or $312.50 per month), up from $3,480 (or $290 per month) in 2018.
The lowest cost plan offered must meet the affordability standard as discussed above AND an ACA-compliant plan must provide minimum value by having an actuarial value of at least 60%, meaning the plan pays for at least 60% of covered benefits including hospitalization, pharmacy and physician charges. Most traditional fully insured plans and self-funded plans meet the minimum value. MEC or limited benefit plans do not.