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3 Ways to Determine if Your Health Coverage is Affordable

Have you determined if your company's health care coverage will be deemed affordable under Health Care Reform?As implementation of health care reform moves forward, many companies are scrambling to find out if they are impacted by the “Pay or Play” rules. Recently, we covered some of the proposed regulations that help to clarify which employers may be subject to the rules set out by the Affordable Care Act (ACA).

One reason that employers may be forced to pay penalties is if they offer health care coverage that is unaffordable.

To determine if your company falls into that category, here is a brief overview of the guidelines that have been provided regarding this subject:

How does the ACA define “unaffordable”?

An employer’s health care coverage offering is deemed unaffordable if the required contribution by the employee for self-only coverage exceeds 9.5% of the employee’s annual household income for the calendar year.

However, many employers may not generally know an employee’s household income. Thus, the IRS has outlined three safe harbors that can be used.

Three Safe Harbors for Determining Affordability

To help employers determine affordability without knowing an employee’s household income, the following safe harbors may be utilized:

  • W-2 Wages: This provision enables employers to determine affordability based on the employee’s Form W-2 wages. Employers can look at whether the employee’s required contribution for self-only coverage exceeds 9.5% of what is reported on their W-2.
  • Rate of Pay: Another option is to determine affordability based on the employee’s rate of pay. For salaried workers, the employee’s monthly salary would be used. For hourly employees, their hourly rate of pay should be multiplied by 130 hours per month.
  • Federal Poverty Line (FPL): One more option for employers to determine affordability is to base it on the FPL for a single individual. If the employee’s cost does not exceed 9.5% of the FPL, the coverage is considered affordable.

Additional Information

As more information is released regarding the Affordable Care Act please stay tuned to the CBG Benefits website. We will continue to do all we can to present the key items that may impact your business.

Check out our growing collection of health care reform resources >>


Image courtesy of bulldogza / FreeDigitalPhotos.net

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Posted in: Benefits and Insurance, Legislation

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