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In 2020, the affordability threshold will decrease. What that means is that employers will need to contribute more to their employee’s health coverage in order to fall below the affordability ceiling.
IRS Notice 2019-29 states that beginning January 1, 2020, the affordability threshold for determining whether or not employer sponsored healthcare is affordable as required by the ACA’s Employer Mandate will be 9.78% of the Federal Poverty Level. This is less than the 2019 tax year’s 9.86%.
The lower affordability percentage affects the maximum amount an employee can contribute towards the medical premium, which means that employers may need to contribute more to cover health care premiums for employees if premium levels stay the same in 2020. This is because the required employee contribution to the health insurance premium cannot exceed an affordability threshold of 9.78% for 2020, which is the maximum percentage of the employee’s contribution for healthcare coverage to his/her household income. The employer must subsidize any premium costs above that level to ensure the employer’s ACA plan will be considered to be affordable.
Here’s an example of how it will impact employers:
Richey Fitz is one of 1,000 employees who gets paid $15 an hour at local manufacturing facility. Under the ACA, he must work at minimum of 130 hours a month to be considered a full-time employee. The manufacturer uses the Rate of Pay Safe Harbor for calculating affordability for its workforce. As an employee, the maximum Richey can be charged for the health plan to be determined affordable under the ACA is $190.71 per month ($15/hour x 130 hours = $1,950 x 9.78%). In 2019, the maximum Richey would have paid in order for the coverage to be affordable was $192.27 per month ($15/hour x 130 hours = $1,950 x 9.86%).
As the employer, if the premium remains the same in 2020 as it was in 2019, the manufacturer must pay the difference of $1.56 per month as part of its share of the insurance premiums for Richey. While a seemingly small difference, the decrease in what an employee contributes towards health coverage to maintain affordability under the ACA will mean additional employer cost when its multiplied across an entire workforce on an annual basis. In this case, that could mean $18,720 a year in additional cost for these 1,000 employees. And of course, this assumes that the overall healthcare premiums remains the same, which is often not the case, and instead increases every year.
Employers should note that failing to comply with the new affordability determinations for the 2020 tax year could result in IRC 4980H(b) penalties being assessed by the IRS as a part of the ACA’s Employer Mandate. That is a penalty of $3,750 for each employee that declines an offer of coverage and obtains a Premium Tax Credit (PTC) while purchasing health insurance on a state or federal exchange.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) a Section 4980H penalties.
Organizations will need to be sure they file and furnish their ACA information for the 2019 tax year accurately and by IRS deadlines. With theIRS yet to have issued any type of extension for filing and furnishing, it could be challenging for employers to meet the deadlines as currently listed. You can find the IRS deadlines for filing 2019 ACA information in this ACA 101 Toolkit for 2019. Get your copy by clicking here.
Employers that contact Trusaic by November 30 will have their ACA compliance needs completed by IRS deadlines using Trusaic’s ACA CompleteSM solution. You can learn more by clicking here.
