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The ACA and Affordability – What is this anyway?

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While non-ALEs who offer group health coverage may have small group carrier requirements about affordability for their employees, these non-ALE employers are not subject to the Section 4980H affordability requirements and cannot be held liable for any employer shared responsibility penalties. Now that the IRS is actively enforcing the employer shared responsibility penalties against ALEs, understanding these affordability requirements is critical for ALEs to avoiding exposure to Section 4980H(b) penalties.

Generally, ALEs will be subject to these Section 4980H(b) penalties when they offer coverage to at least 95% of their full-time employees, but one of these full-time employees receives an unaffordable offer of coverage (or an offer of coverage that does not provide minimum value) and enrolls in subsidized Marketplace coverage. For each month in 2018 this occurs, the ALE would be subject to a monthly Section 4980H(b) penalty of $290. Depending on the number of full-time employees enrolling in subsidized Marketplace coverage and receiving an unaffordable offer of coverage, this Section 4980H(b) penalty can add up quickly.

So, how do ALEs determine when coverage is “affordable” to avoid this penalty exposure? In general, coverage is affordable if the employee’s required contribution for employee-only coverage under the least expensive plan providing minimum value does not exceed an indexed 9.5% of the employee’s household income (9.56% in 2018, 9.86% in 2019).  Because ALEs do not typically know their employees’ household incomes, IRS regulations provide the following affordability safe harbors that ALEs may use:

  • W-2 safe harbor: If the employee’s contribution for single coverage under the employer’s lowest cost medical option does not exceed an indexed 9.5% of the employee’s Box 1, W-2 pay (taxable wages) for the current year, the affordability test is satisfied.  This method may be more useful when the employees work overtime or hours over 130 in a month.
  • Rate of pay safe harbor: If the employee’s contribution for single coverage under the lowest cost medical option offered by the employer does not exceed an indexed 9.5% of the employee’s lowest hourly wage in a month X130, the affordability test is satisfied.  This method disregards actual hours worked and assumes hourly rate x 130.  Overtime rate of pay is also ignored.  Please note, however, that this method of calculation cannot be used for tipped or commission-based employees.
  • Federal poverty line safe harbor:If the employee’s contribution for single coverage under the employer’s lowest cost medical option does not exceed an indexed 9.5% of the federal poverty level for a single individual, the affordability test is satisfied.  The federal poverty guidelines are generally updated each year.  The current levels can be found here:  https://aspe.hhs.gov/poverty-guidelines

 

We hope this tip sheet helps provide a general overview of the Section 4980H affordability requirements.  For your convenience, we are also attaching an ROP cheat sheet for both 2018 and 2019.  If you have any questions or need further assistance, please contact ETC and we will be happy to help.

Content produced by our partners ​ETC (Eligibility Tracking Calculators). For more information on other ACA & HR Compliance topics, speak to a benefit consultant today.

Affordability Chart for 2018 Plan Year
Using Rate of Pay Method

wage / hour monthly hrs monthly wage 9.56% threshold
7.25 130 942.5 90.10
7.35 130 955.5 91.35
7.50 130 975 93.21
8.00 130 1040 99.42
8.25 130 1072.5 102.53
8.50 130 1105 105.64
8.75 130 1137.5 108.75
9.00 130 1170 111.85
9.25 130 1202.5 114.96
9.50 130 1235 118.07
9.75 130 1267.5 121.17
10.00 130 1300 124.28
10.25 130 1332.5 127.39
10.50 130 1365 130.49
10.75 130 1397.5 133.60
11.00 130 1430 136.71
11.25 130 1462.5 139.82
11.50 130 1495 142.92
11.75 130 1527.5 146.03
12.00 130 1560 149.14
12.25 130 1592.5 152.24
12.50 130 1625 155.35
12.75 130 1657.5 158.46
12.92 130 1679.6 160.57
13.00 130 1690 161.56
13.25 130 1722.5 164.67
13.5 130 1755 167.78
13.75 130 1787.5 170.89
14.00 130 1820 173.99
14.25 130 1852.5 177.10
14.50 130 1885 180.21
14.75 130 1917.5 183.31
15.00 130 1950 186.42
15.25 130 1982.5 189.53
15.50 130 2015 192.63
15.75 130 2047.5 195.74
16.00 130 2080 198.85
16.25 130 2112.5 201.96
16.50 130 2145 205.06
16.75 130 2177.5 208.17
17.00 130 2210 211.28
17.25 130 2242.5 214.38
17.50 130 2275 217.49
17.75 130 2307.5 220.60
18.00 130 2340 223.70
18.25 130 2372.5 226.81
18.50 130 2405 229.92
18.75 130 2437.5 233.03
19.00 130 2470 236.13
19.25 130 2502.5 239.24
19.50 130 2535 242.35
19.75 130 2567.5 245.45
20.00 130 2600 248.56
20.25 130 2632.5 251.67
20.50 130 2665 254.77
20.75 130 2697.5 257.88
21.00 130 2730 260.99
21.25 130 2762.5 264.10
21.50 130 2795 267.20
21.75 130 2827.5 270.31
22.00 130 2860 273.42
22.25 130 2892.5 276.52
22.50 130 2925 279.63
22.75 130 2957.5 282.74
23.00 130 2990 285.84
23.25 130 3022.5 288.95
23.50 130 3055 292.06
23.75 130 3087.5 295.17
24.00 130 3120 298.27
24.25 130 3152.5 301.38
24.50 130 3185 304.49
24.75 130 3217.5 307.59
25.00 130 3250 310.70
25.25 130 3282.5 313.81
25.50 130 3315 316.91
25.75 130 3347.5 320.02
26.00 130 3380 323.13
26.25 130 3412.5 326.24
26.50 130 3445 329.34
26.75 130 3477.5 332.45
27.00 130 3510 335.56
27.25 130 3542.5 338.66
27.50 130 3575 341.77
27.75 130 3607.5 344.88
28.00 130 3640 347.98
28.25 130 3672.5 351.09
28.50 130 3705 354.20
28.75 130 3737.5 357.31
29.00 130 3770 360.41
29.25 130 3802.5 363.52
29.50 130 3835 366.63
29.75 130 3867.5 369.73
29.92 130 3889.99 371.88

Affordability for 2019 Plan Year –
Using Rate of Pay Method

wage / hour monthly hours monthly wage 9.86% threshold
7.25 130 942.5 92.93
7.35 130 955.5 94.21
7.50 130 975 96.14
8.00 130 1040 102.54
8.25 130 1072.5 105.75
8.50 130 1105 108.95
8.75 130 1137.5 112.16
9.00 130 1170 115.36
9.25 130 1202.5 118.57
9.50 130 1235 121.77
9.75 130 1267.5 124.98
10.00 130 1300 128.18
10.25 130 1332.5 131.38
10.50 130 1365 134.59
10.75 130 1397.5 137.79
11.00 130 1430 141.00
11.25 130 1462.5 144.20
11.50 130 1495 147.41
11.75 130 1527.5 150.61
12.00 130 1560 153.82
12.25 130 1592.5 157.02
12.50 130 1625 160.23
12.75 130 1657.5 163.43
12.92 130 1679.6 165.61
13.00 130 1690 166.63
13.25 130 1722.5 169.84
13.50 130 1755 173.04
13.75 130 1787.5 176.25
14.00 130 1820 179.45
14.25 130 1852.5 182.66
14.50 130 1885 185.86
14.75 130 1917.5 189.07
15.00 130 1950 192.27
15.25 130 1982.5 195.47
15.50 130 2015 198.68
15.75 130 2047.5 201.88
16.00 130 2080 205.09
16.25 130 2112.5 208.29
16.50 130 2145 211.50
16.75 130 2177.5 214.70
17.00 130 2210 217.91
17.25 130 2242.5 221.11
17.50 130 2275 224.32
17.75 130 2307.5 227.52
18.00 130 2340 230.72
18.25 130 2372.5 233.93
18.50 130 2405 237.13
18.75 130 2437.5 240.34
19.00 130 2470 243.54
19.25 130 2502.5 246.75
19.50 130 2535 249.95
19.75 130 2567.5 253.16
20.00 130 2600 256.36
20.25 130 2632.5 259.56
20.50 130 2665 262.77
20.75 130 2697.5 265.97
21.00 130 2730 269.18
21.25 130 2762.5 272.38
21.50 130 2795 275.59
21.75 130 2827.5 278.79
22.00 130 2860 282.00
22.25 130 2892.5 285.20
22.50 130 2925 288.41
22.75 130 2957.5 291.61
23.00 130 2990 294.81
23.25 130 3022.5 298.02
23.50 130 3055 301.22
23.75 130 3087.5 304.43
24.00 130 3120 307.63
24.25 130 3152.5 310.84
24.50 130 3185 314.04
24.75 130 3217.5 317.25
25.00 130 3250 320.45
25.25 130 3282.5 323.65
25.5 130 3315 326.86
25.75 130 3347.5 330.06
26.00 130 3380 333.27
26.25 130 3412.5 336.47
26.50 130 3445 339.68
26.75 130 3477.5 342.88
27.00 130 3510 346.09
27.25 130 3542.5 349.29
27.50 130 3575 352.50
27.75 130 3607.5 355.70
28.00 130 3640 358.90
28.25 130 3672.5 362.11
28.50 130 3705 365.31
28.75 130 3737.5 368.52
29.00 130 3770 371.72
29.25 130 3802.5 374.93
29.50 130 3835 378.13
29.75 130 3867.5 381.34
29.92 130 3889.99 383.55