Author: Shelly Hodges-Konys, Director of Compliance
While many of us are celebrating the end of summer and excitedly watching family and friends send children off for another adventurous school year, the IRS issued a reminder that there is homework to be done by large employer group health plans. The recent announcement of the ACA affordability percentage for 2022 represents a reduction - 9.61% - from the current limit of 9.83%. This means that large employers may need to adjust their employee contributions for plans to remain affordable.
The affordability percentage is a key component in determining whether an employer could be required to make a penalty payment under the ACA’s employer mandate. As a reminder, the ACA’s employer mandate requires large employers (those with 50 or more full-time equivalent employees) to offer affordable, minimum value health coverage to avoid a penalty in the event an employee enrolls in marketplace coverage and receives assistance. A plan is considered affordable if the employee’s share of the cost of single coverage for at least one plan option offered is less than 9.61% multiplied by the employee’s household income. The affordability percentage is adjusted annually and because the percentage will drop from the current 9.83% to 9.61% in 2022, an offer of coverage that is affordable today may not be affordable next year.
The affordability percentage is also used in applying the IRS safe harbors used to protect employers from inadvertent penalty. The three safe harbors include:
- Federal Poverty Level: Under the Federal Poverty Level safe harbor, the employee’s contribution for the lowest-cost self-only coverage that provides minimum value cannot exceed 9.61% of the Federal Poverty Level set by The Department of Health and Human Services (HHS). The current mainland federal poverty level is $12,880 – this means the maximum contribution for an employer using the Federal Poverty Level safe harbor for 2022 is $103.14 (down from $104.53).
- Rate of Pay: This test bases affordability on an employee’s rate of pay. For an hourly employee, the contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.61% of the employee’s hourly rate of pay multiplied by 130 hours per month.
- Form W-2 (Box 1): Coverage is deemed affordable for 2022 if an employee’s premium contribution for the lowest-cost, self-only coverage that provides minimum value does not exceed 9.61% of the employee’s Box 1 wages on Form W-2 in the 2022 taxable year.Impact to Employers
Impact to Employers
Employers should use the new affordability threshold when evaluating 2022 cost-sharing to avoid risk of penalties under the ACA’s employer mandate. We are beginning to see renewed commitment to ACA compliance under the new Administration. This updated affordability percentage is effective for calendar year plans beginning on or after January 1, 2022, and for non-calendar year plans on their 2022 renewal date. Please contact your HORAN representative at 800.544.8306 for assistance in determining whether your plans are affordable.
The information contained in this document is informational only and is not intended as, nor should it be construed as, legal or accounting advice. Neither HORAN nor its consultants provide legal, tax nor accounting advice of any kind. We make no legal representation, nor do we take legal responsibility of any kind regarding regulatory compliance. Please consult your counsel for a definitive interpretation of current statute and regulation, and their impact on you and your organization.