Are You Sure That Your Health Plan is Affordable?
While Congress continues to battle over how to reform health care reform, employers must continue to comply with the Affordable Care Act, including the employer shared responsibility or pay or play provisions. In order to avoid penalties, large employers must provide “affordable” minimum value coverage to all full-time employees. Prior to 2015, most large employers spent a lot of time reviewing plan premiums and provisions to minimize their risk of penalty under the law and make sure the premiums they were charging were affordable. Some employers thought their work was done and went back to making widgets. However, whether an employer’s plan is affordable is something that must be reevaluated each year.
If you are reading this article thinking “we calculated it last year and we were fine and aren’t raising our premiums, so we must still be fine,” you are actually sadly mistaken. The reason being that the affordability percentage is adjusted each year by the IRS. For 2017, a plan was affordable if the cost of single coverage was less than 9.69 percent. The IRS recently announced the percentage for 2018 and it actually went down to 9.56 percent (which is ironically what it was in 2015). What does this mean for employers? It means that if you set your premiums for 2017 based on the 9.69 percent, a plan that was affordable may now be unaffordable in 2018 if you are using rate of pay or Form W-2 safe harbors.
If you are using the rate of pay or Form W-2 safe harbor, there is another factor that could change your affordability. We had some clients that would set their premium based on the affordability percentage for the year based on the lowest rate of pay. If you are an employer using the rate of pay, you should reevaluate each year prior to setting premiums, whether you have anyone who now is at a lower rate of pay (e.g., a new hire starting at a lower base rate). Similarly, if you are relying on the W-2 safe harbor, you need to evaluate whether there are any other factors that could cause a decrease to your employees’ box 1 wages (e.g., you start offering a 401(k) plan for the first time or begin allowing payroll deductions to an HSA).
While the affordability percentage went down, the single poverty level went up, so the amount you can charge under the federal poverty level increased this year. For 2018, you must charge $96.07 or less per month for single coverage to satisfy the federal poverty level safe harbor.
Hopefully, this post will help you avoid any missteps in setting your premiums to make them affordable. Have you come across any other missteps that you would like to share? If so, please share in the comments.