On May 21, 2018, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 which indexes the contribution percentages for 2019 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.86 percent of the employee’s household income for the year for purposes of the employer shared responsibility rules. This is an increase from the 2018 affordability threshold percentage of 9.56%. The 2019 increase in the affordability percentage for employer shared responsibility purposes means that employers will be able to charge employees a slightly higher price for their health benefits and still meet the “affordability” test.
Since an employer would not know an employee’s household income, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages if they use one of three affordability safe harbor methods. The three safe harbors to measure affordability are Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.
Below is an example of how the percentage change impacts an employer’s monthly affordable amount using the three safe harbor tests. The example assumes an employee earns $10/hour.
$10 / hour
|Rate of Pay
|Federal Poverty Line*
*Based on Jan. 2018 FPL of $12,140
Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit from the Exchange. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.