The IRS announced the affordability percentages for 2019. These percentages apply for three purposes:
- Employer Shared Responsibility
- Individual Mandate Exemption
- Premium Tax Credit Availability (to an individual)
Employers are most interested in the first one listed above. Under the Employer Shared Responsibility provisions, large employers who do not offer affordable, minimum value coverage face potential penalties if full-time employees qualify for subsidies to buy health insurance in the Marketplace. Employer-sponsored coverage is considered “affordable” if the portion that the employee is required to pay for the lowest cost, self-only coverage does not exceed a certain percentage of the employee’s household income (or a percentage of one of the three safe-harbors: W-2, rate of pay or Federal Poverty Line).
For 2019, that percentage will be 9.86%, an increase of 0.3 from the 2018 rate of 9.56%. Although this may not seem like a sizeable increase from last year, note (in the matrix below) that it is a much larger increase than any prior one-year increase. In fact, from 2017 to 2018 the affordability rate decreased from 9.69% to 9.56%. This has implications for large employers.
The 2019 increase in the affordability percentage for Employer Shared Responsibility purposes means that employers will be able to charge employees a slightly higher price for their health benefits and still meet the “affordability” test. For example, employers who use the Federal Poverty Line (FPL) safe harbor can increase the affordable amount from $96.72 to $99.75. Employer who use the rate-of-pay safe harbor can increase the affordable amount from $124.28 to $128.18 for an employee earning $10 per hour.
When the affordability percentage decreased from 2017 to 2018, employers who were already at the maximum amount under the W-2 and rate-of-pay safe harbors found they had to reduce employee rates in order to meet affordability for low-wage employees. This was not the case under the FPL method because the FPL dollar amount increased even though the affordability percentage decreased.