The Department of Health and Human Services (HHS) recently made available an FAQ specifying the cost-sharing reduction limits (CSR) for the 2022 tax year.
In the FAQ, the HHS makes clear that the maximum out-of-pocket limit for plans beginning on or after January 1, 2022, will be $8,700 for self-only coverage and $17,400 for coverage beyond self-only.
The cost-sharing reduction amounts are lower than what was initially proposed by HHS and can be attributed to a change in the methodology for calculating premium inflation. Based on comments the HHS received, the agency has adopted a pre-2020 approach that uses National Health Expenditure Accounts to estimate employer-sponsored insurance premiums for determining health insurance premium rates as the basis for calculating the cost-sharing reduction limits.
According to the FAQ, “HHS agreed with commenters and in the HHS Notice of Benefit and Payment Parameters for 2022 and Pharmacy Benefit Manager Standards final rule, 6 HHS finalized a readoption of the NHEA ESI premium measure to calculate the premium adjustment percentage and other cost-sharing parameters, including the maximum annual limitation on cost sharing, for the 2022 plan year and beyond.”
Healthinsurance.org defines the ACA’s cost-sharing reduction as a subsidy “that reduces out-of-pocket costs for eligible enrollees who select Silver health insurance plans in the marketplace. CSRs – often referred to as cost-sharing subsidies – reduce enrollees’ cost-sharing by lowering a health plan’s out-of-pocket maximum, and increasing the actuarial value (AV) of the plan that lowers the amount you have to pay for deductibles, copayments, and coinsurance.”
Cost-sharing reductions apply strictly to Silver quality health plans, and unlike Premium Tax Credits (PTCs) which reduce the cost of monthly healthcare premiums, cost-sharing reductions apply towards health insurance deductibles and copays.
HHS’s decision to reduce the cost-sharing reduction limitation confirms that individuals will have lower out-of-pocket costs to pay for healthcare-related expenses. This decision creates greater overall access to affordable quality healthcare for individuals and strongly aligns with Biden’s agenda to bolster the ACA.
As part of Biden’s American Rescue Plan, eligibility for receiving both ACA subsidies, cost-sharing reductions, and PTCs, was expanded for U.S. citizens. Beginning in 2022, individuals who lose eligibility for cost-sharing reductions may become eligible for a special enrollment period to obtain a different metal-tier healthcare plan. This period may allow eligible individuals to switch from receiving ACA cost-sharing reductions to premium tax credit subsidies instead.
With increased access to ACA premium subsidies to individuals, the issuance of PTCs may increase as a result. As a reminder to employers, PTCs are the trigger for the IRS issuing ACA penalty notice Letter 226J — the penalty issued to employers the IRS believes failed to comply with the ACA’s Employer Mandate for a specific tax year.
Under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees, known as Applicable Large Employers (ALEs) must:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents)
- Ensure that the coverage for the full-time employee is deemed affordable based on one of the IRS-approved methods for calculating affordability and meets Minimum Value (MV)
Failure to adhere to these two requirements could subject ALEs to Internal Revenue Code (IRC) Section 4980H penalties.
As the fourth quarter of the 2021 tax year approaches, employers should begin assessing their ACA compliance processes to ensure a smooth filing season. With more PTCs being issued and greater IRS enforcement of the ACA, employers need to be prepared.
If you need assistance understanding your Employer Mandate responsibilities, download the 2021 ACA Essential Guide for Employers.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.
