On May 21 of this year, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 to index the contribution percentages for 2019 for the purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA).
This change marks a significant increase from the percentages applicable in 2018. As a result, some employers may have additional flexibility with respect to their employee contributions for 2019 to meet the adjusted percentage.
Under the ACA, the affordability of an employer’s plan may be assessed in three contexts:
The employer shared responsibility penalty for applicable large employers (ALEs), also known as the “pay or play” rules or employer mandate.
An exemption from the individual mandate tax penalty for individuals who fail to procure health coverage.
The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
All of these have an affordability determination, but the test for determining a plan’s affordability varies for each provision.
The ACA’s employer shared responsibility or pay or play rules require ALEs to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The affordability of health coverage is a key point in determining whether an ALE will be subject to a penalty. The figure is expressed as a percentage of the employee’s household income for the tax year. For 2019, the affordability contribution percentage for this scenario increases from 9.56 percent to 9.86 percent.
The individual mandate exemption may invite misunderstanding, as the Tax Cuts and Jobs Act reduced the ACA’s individual mandate penalty to zero, also beginning in 2019, meaning that individuals will no longer be penalized for failing to obtain health coverage. However, a final rule notes that individuals may still need to seek this exemption in 2019 and beyond. As a result, this IRS ruling increases the required contribution percentage in this situation from 8.05 percent to 8.3 percent.
The ACA provides premium tax credits to help low-income individuals and families afford health coverage purchased through an Exchange. The amount of the credit is based on the amount the individual should be able to pay for premiums, also known as the expected contribution. The percentage of income for that contribution will also rise in 2019, with the top tier increasing from 9.56 percent to 9.86 percent.
Questions about changes to the ACA or other benefits topics? Contact Consolidated Insurance.