Now that the final attempt (this year) at dismantling the Affordable Care Act came to a quiet end in the last week of September, employers need make sure that they stay on track with compliance.

First and foremost is that the ACA’s employer mandate and shared responsibility provisions still stand. That includes the affordability test, to which employers need to pay special attention, as increases in premium can put some of your employees over the edge into “unaffordable” coverage territory.

And this year there’s a twist that you need to be aware of.

As it’s almost time for open enrollment, you’ll likely soon be settling on your premium-sharing amounts for your 2018 group health policies. Pay close attention to the affordability test, which bars employers from providing coverage that will cost the employee more than a certain percentage of their salary.

When the ACA was signed into law, the percentage was set at 9.5% and would change every year based on inflation.


Affordability level reduced
But for 2018, the Department of Treasure actually reduced the affordability level to 9.56% from 9.69%.

What this means is that you may actually have to lower the amount some employees contribute to their premium to ensure that you don’t fall afoul of the affordability test.

Because employers have no way of knowing what an employee’s total household income is, the IRS created affordability test “safe harbors” to show that the employer has provided coverage that is considered “affordable” and hence should not be subject to any fines if an employee manages to get coverage on an exchange and receive a premium tax credit to do so.

These safe harbors, set out in the final shared responsibility regulations, provide that employer coverage will be considered affordable for purposes of the employer shared responsibility assessment if the required employee contribution for the lowest-cost option offered does not exceed 9.5% of one of the following:

  • W-2 – The employee’s wages for the calendar year reported on the Form W-2.
  • Rate of pay – The amount obtained by multiplying 130 hours by the lower of the employee’s hourly rate of pay as of the first day of the coverage period or lowest rate of pay during the calendar month.
  • Federal poverty line – An amount equal to the federal poverty line for a single individual, divided by 12. Under the FPL safe harbor, employers use the FPL in effect six months prior to the beginning of the plan year to allow time to establish premium amounts in advance of the plan’s open enrollment period.


The affordability test reduction affects employers who use the W-2 and the rate-of-pay safe harbors. In both cases you may need to reduce the employee contribution rate for single coverage in your lowest-cost plan.


The takeaway:

Be careful when setting employee contribution rates for your 2018 health plans. If you’re unsure whether you are setting them correctly, you can contact us or your tax advisor.


This blog is not intended to provide legal advice, but rather perspective on recent regulatory issues, trends and standards affecting health insurance, voluntary benefits, 401(k) plans and other employee benefits. Please consult your broker or legal counsel for further information on the topics covered herein.