Mixed Signals on Affordability
Last month, the IRS issued guidance regarding whether employer provided group health plan coverage is affordable under the ACA. Interestingly for employers, the guidance increased the threshold percentage from 9.5% to 9.56% for the purpose of determining whether an employer offers affordable coverage to an employee. Under the new guidance, if an employer charges the employee 9.56% or less of the employee’s household income for single group health plan coverage, the plan is considered affordable for the purposes of “pay-or-play” requirements. Just when you thought you had the affordability thresholds all figured out, right?
Since calculating an employee’s household income is tricky at best, many employers use one of safe harbors provided by the IRS to determine affordability. Before last month’s guidance, employers could avoid asking an employee about their household income, and determine affordability by assessing whether the premium exceeded 9.5% of the employee’s: (1) W-2 income; (2) rate of pay; or (3) a measure of the Federal Poverty Level.
But employers may want to pause before using the new increased 9.56% to determine affordability for employee-only coverage under the ACA. While the intent of the July IRS guidance may have been to change the rule, the fact is, the safe harbors in the IRS regulation still reflect the 9.5% standard. Until further guidance from the IRS, employers should continue to rely on 9.5% when assessing affordability using the safe harbor rules.