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IRS annually limits how much employees can be asked to pay for health insurance
The Affordable Care Act (ACA) has many moving parts, and not to be overlooked is the annual inflation-adjusted shift in what constitutes "affordable" health care coverage.
In May, the IRS announced in Revenue Procedure 2017-36
the 2018 shared-responsibility affordability percentage. For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if an employee's required contribution for self-only coverage for the least-expensive plan option that meets ACA requirements does not exceed 9.56 percent of the employee's household income for the year (down from 9.69 percent in 2017).
Since employers don't know their employees' household incomes, the ACA created a safe harbor in which any of the following can be used in lieu of household income:
"Employers should consider the adjustments to the affordability contribution percentage in developing a contribution strategy for 2018," wrote Richard Stover and Leslye Laderman, consultants with Conduent HR Services,
in their recent analysis. Employers "may be able to increase the required employee contribution for their lowest-cost self-only coverage and still satisfy one of the safe harbors."
"Because the 2018 affordability rate is lower than the 2017 affordability rate, applicable large employers may need to reduce their employees' share of premium contributions to maintain affordable coverage,"
commented Danielle Capilla, chief compliance officer at United Benefit Advisors. "Employers should double check their anticipated 2018 premiums now to prevent the need for mid-year changes."
2018 FPL Safe Harbor
"Many employers use the FPL safe harbor to develop employee contributions for self-only coverage to avoid ACA assessments under section 4980H," which the ACA added to the tax code, Stover and Laderman noted. "Using the FPL safe harbor also simplifies ACA reporting and coding of Form 1095-C," the annual reporting through which employers that are subject to the ACA verify that they provided affordable coverage to full-time employees throughout the year.
For 2018, the maximum monthly contribution that meets the FPL safe harbor will be 9.56 percent of the prior year's federal poverty level divided by 12.
Prior Year FPL
Maximum Monthly Contribution
Source: Conduent HR Services, based on IRS Revenue Procedure 2017-36.
Premium Tax Credit Eligibility
Individuals may be eligible for a premium tax credit to purchase health coverage through the ACA's public health care exchanges if, among other things, they are not offered
affordable coverage through an eligible employer plan that provides
minimum value. For this purpose, Revenue Procedure 2017-36 states that an employer-sponsored plan will be considered affordable for plan years beginning in 2018 if the portion of the annual premium an employee must pay for self-only coverage does not exceed 9.56 percent of his or her household income.
[SHRM members-only toolkit:
Communicating with Employees About Health Care Benefits Under the Affordable Care Act]
Applicable large employers (those that had 50 or more full-time equivalent employees during the preceding calendar year) that fail to provide "affordable coverage" are liable for a penalty of $3,000 per year per each full-time employee who receives a premium tax credit through the ACA Marketplace exchange, the Wagner Law Group
Additional Cost-Sharing Limits
There are other ACA plan requirements related to affordability to 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.
Nongrandfathered group health plans must comply with an annual limit on cost-sharing, known as an out-of-pocket (OOP) maximum, set by the department of Health and Human Services (HHS).
For nongrandfathered health insurance plans, the ACA's self-only annual limit on OOP costs
applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.
The IRS annually sets
a separate, lower OOP maximum for high-deductible health plans (HDHPs) that can be linked with health savings accounts (HSAs), known as HSA-qualified HDHPs. Below is a comparison of the two sets of limits.
Out-of-pocket limits for ACA-compliant plans (set by HHS)
Out-of-pocket limits for HSA-qualified HDHPs (set by IRS)
Individual Mandate Affordability Exemption
The ACA requires individuals to have minimum
essential health coverage for each month unless they qualify for an exemption or to pay a penalty when filing their federal income tax return. One exemption applies to individuals who can't afford coverage because the minimum amount they must pay for premiums is more than a designated percentage of the individual's household income.
For plan years beginning in 2018, Revenue Procedure 2017-36 designates this percentage as 8.05 percent of an individual's household income, up from 8.16 percent in 2017.
2018 Federal Poverty Level Will Affect 2019 Safe Harbor
In January 2018, the department of Health and Human Services released the
2018 Federal Poverty Guidelines. For 2018, the mainland Federal Poverty Level (FPL) is $12,140, up from $12,060 for 2017 (there are separate poverty guidelines for Hawaii and Alaska).
As noted above, fhe affordability safe harbor for a given year uses the prior year's FPL.
in an online post from benefits brokerage Hub International: If the 2019 affordablity percentage were to stay unchanged at 9.56 percent, then to satisfy the safe harbor for mainland employees in 2019, the monthly premium amount could not exceed $96.71.
Related SHRM Article:
Prepare for ACA Information Reporting in Early 2018,
SHRM Online Benefits, September 2017
Related SHRM Resources:
Health Care Reform Resources for Employers
1095-C Reporting: How to Use Affordability Safe Harbors, via Integrity Data
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