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The Affordable Care Act's (ACA's) annual updates in cost-sharing limits for group health plan coverage impacts employers, as they could face steep penalties for failing to provide affordable coverage under the ACA's shared-responsibility provisions.
Earlier this year, the IRS announced the 2019 shared-responsibility affordability percentage. Next year, health coverage will satisfy the requirement to be affordable if your group plan’s employee-only coverage option does not exceed 9.86% of an employee's household income; that’s up from 9.56 percent in 2018.
This Adjustment vs Annual Premium Allocations
The affordability standard is defined as he highest percentage of household income an employee can be required to pay for monthly plan premiums, based on the least-expensive plan offered by his employer.
This really isn’t bad news for the employer, because pricing at least one of your group health plan options below the threshold will avoid triggering the employer-shared responsibility penalties under Section 4980H(b). And, as long as your group health plan meets the affordability requirement of 9.86% it allows the employer an opportunity to allocate a little more of the price, especially if the group plan experiences a rate increase, to employees while still continuing to provide affordable coverage.
Using Safe Harbors to Calculate Affordability
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:
Using the FPL to Calculate Affordability
Many employers use the FPL safe harbor to develop employee contributions for employee-only coverage to avoid ACA penalties.
Using the FPL safe harbor also simplifies ACA reporting on form 1095-C, which plan sponsors file with the IRS for each employee offered ACA-compliant health coverage.
In 2019 plans that are using the FPL safe harbor to determine affordability, an employee's premium payment can't exceed $99.75 per month, which is 9.86% of 2019’s Federal Poverty Level of $12,140, and is up from $96.08 per month in 2018.
This is a simplified approach but may mean that an employer will pay more than he absolutely has to, towards employee-only coverage; especially if he has a higher paid workforce. So, it could be valuable for an employer to engage the services of a knowledgeable and ACA qualified health insurance consultant to help him or her establish the best method for ensuring affordability with in their group health plan.
Employer Shared-Responsibility Penalty
The IRS can still impose a shared-responsibility penalty when an employer with 50 or more full-time or equivalent employees, when the employer fails to offer minimum essential coverage to the full-time employees and their dependent children. This annual penalty can also be prorated monthly, for each month where at least one full-time employee receives a premium tax credit through the federal exchange found at www.healthcare.gov.
For 2019, the employer’s 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.
New Cost-Sharing Limits
For 2019, there are other ACA cost-sharing limits that employers must keep in mind.
An ACA-compliant plan must provide minimum value by having an actuarial value of at least 60 percent, the statute states, meaning the plan pays for at least 60 percent of covered benefits.
ACA compliant, group health plans must comply with an annual limit on cost-sharing, known as an out-of-pocket (OOP) maximum. This limit takes into account an employee's spending under the plan deductible, as well as co-payments and percentage-of-cost co-sharing payments, but not plan premiums.
For the 2019 plan year, the OOP maximum limit on most employer sponsored health plans will be $7,900 for employee-only coverage and $15,800 for family coverage. But, the IRS does set a lower OOP maximum for qualified high-deductible health plans (HDHPs) that can be coupled with health savings accounts. For 2019 those limits are $6,750 for employee-only and $13,500 for family.
As you can see, there are a lot of changes to ACA thresholds for 2019 and at Summerlin Benefits Consulting, we help to guide our clients through this process safely so that you can make important health plan decisions for betterment of your business and your employees. Call us today for information about our services.