Benefits Compliance, Employer Mandate, Health Care Reform, Individual Mandate, Taxes, Fees & Penalties

ACA Affordability Percentages for 2019

The IRS announced the affordability percentages for 2019:  9.86% and 8.3%. (Revenue Procedure 2018-34, click here.)  These percentages (originally 9.5% and 8.0% in 2014) apply for three purposes:

  • Employer Shared Responsibility – 9.86%
  • Individual Mandate Exemption – 8.3%
  • Premium Tax Credit Eligibility – 9.86%

(For a summary of these three different affordability tests, click here for a prior article on this site.)Employers are most interested in the first one listed above.  Under the Employer Shared Responsibility provisions, large employers who do not offer affordable, minimum value coverage face potential penalties if full-time employees qualify for subsidies to buy health insurance in the Marketplace. Employer-sponsored coverage is considered “affordable” if the portion that the employee is required to pay for the lowest cost, self-only coverage does not exceed a certain percentage of the employee’s household income (or a percentage of one of the three safe-harbors:  W-2, rate of pay, or Federal Poverty Line for a single individual).

For 2019, that percentage will be 9.86%, an increase of 0.3 from the 2018 rate of 9.56%.  Although this may not seem like a sizeable increase from last year, note (in the matrix below) that it is a much larger increase than any prior one-year increase.  In fact, from 2017 to 2018 the affordability rate decreased from 9.69% to 9.56%.  This has implications for large employers.

  Affordability Percentages
Purpose 2014 2015 2016 2017 2018 2019
Employer Shared Responsibility Rules 9.5 9.56 9.66 9.69 9.56 9.86
Individual Mandate Exemption 8 8.05 8.13 8.16 8.05 8.3
Premium Tax Credit Availability 9.5 9.56 9.66 9.69 9.56 9.86

Implications for Large Employers

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.  For example, employers who use the Federal Poverty Line (FPL) safe harbor can increase the affordable amount from $96.72 to $99.75.  Employer who use the rate-of-pay safe harbor can increase the affordable amount from $124.28 to $128.18 for an employee earning $10 per hour.  See table below.

When the affordability percentage decreased from 2017 to 2018, employers who were already at the maximum amount under the W-2 and rate-of-pay safe harbors found they had to reduce employee rates in order to meet affordability for low-wage employees.  This was not the case under the FPL method because the FPL dollar amount increased even though the affordability percentage decreased.  See table below, last two rows.

The following matrix shows how the affordability percentage change from 2018 to 2019 affects a large employer’s maximum affordable amount  under the three different safe harbors:

Safe harbor $7.25/Hour $8/Hour $10/Hour
  2018 2019 2018 2019 2018 2019
W-2 income1 $120.14 $123.91 $132.57 $136.73 $165.71 $170.91
Rate of Pay2 $90.10 $92.93 $99.42 $102.54 $124.28 $128.18
Federal Poverty Line 3

Jan.2017 FLP x 2018 rate

$96.08 n/a $96.08 n/a $96.08 n/a
Federal Poverty Line 4

Jan.2018 FLP x 2018 & 2019 rates

$96.72 $99.75 $96.72 $99.75 $96.72 $99.75

1W-2 income: This is based on the hourly rate x 40 hours/week x 52 weeks/year

2Rate of Pay: This is based on 130 hours x the three hourly rates noted

3Federal Poverty Line (FPL): This is based on Jan 2017 FPL of $12,060, x 2018 affordability rate of 9.56%; it applies regardless of hourly rate.

4Federal Poverty Line (FPL): This is based on Jan 2018 FPL of $12,140, x 2018 affordability rate of 9.56%; then x 2019  affordability rate of 9.86%.  It applies regardless of hourly rate.

 

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