Benefits in Brief - Spencer Fane Britt & Browne
When Does 9.5% Equal 9.56%?
Kenneth A. Mason,
Tuesday, August 05, 2014 | Filed under: Health
Care Reform, Health Plans, Plan
Administration
The answer is 2015. And herefs why.
First of All, Why 9.5%?
Anyone familiar with the finer points of the Affordable Care Act (gACAh) will
recognize the significance of the 9.5% figure. When applied to an employeefs
total household income, this percentage produces the maximum premium for
employee-only health coverage that will still be considered gaffordable.h And
such gaffordabilityh is significant both for employees and for their
employers (assuming an employer has sufficient full-time employees to be
considered a glarge employerh).
In the case of an employee, even an offer of affordable health
coverage (that also meets the ACAfs 60% gminimum valueh standard) will render
the employee ineligible for the federal tax credits that might otherwise
subsidize the premiums charged for coverage purchased through one of the
Exchanges (also called Marketplaces). And for large employers, offering
affordable (and minimum value) coverage to all full-time employees is a
sure-fire way to avoid the ACAfs substantial gplay-or-payh penalties.
Because employers have no way of knowing an employeefs total household
income, of course, the agencies charged with administering the ACA have
developed three different gsafe harborsh by which an employer can determine the
affordability of its health coverage. Under these safe harbors, an employer may
look solely at an employeefs monthly W-2 income, an employeefs hourly rate of
pay times 130 (the monthly hours needed to meet the definition of a full-time
employee), or the monthly federal poverty level for a one-person household.
Nonetheless, each of these safe harbors still relies on the 9.5% threshold.
OK. So Why 9.56%?
So why will 9.5% equal 9.56% in 2015? Because the ACAfs statutory language
requires the IRS to adjust this percentage (starting in 2015) to reflect
any excess in (1) the rate of health insurance premium growth, over (2)
the rate of income growth (with 2013 used as the base year for both
measurements). And in Revenue Procedure 2014-37, the
IRS has done exactly that.
According to the IRS, premiums have grown more rapidly than incomes. As a
result, the 9.5% threshold must be adjusted upward. For 2015, the adjusted
percentage will rise to 9.56%. This means that any glarge employerh that is
attempting to set employee-only premiums at the maximum level that will still
satisfy the gaffordabilityh standard should be using 9.56%, rather than 9.5%, in
its safe-harbor affordability calculations.
Other Percentage Thresholds Will be Adjusted, As Well
The ACA calls for similar adjustments in related percentage thresholds. For
instance, although an individual is generally exempt from the gindividual
mandateh (the requirement to have at least gminimum essential coverageh or face
a tax penalty) if the premium for such coverage would exceed 8% of his or her
household income, that 8% figure will be adjusted to 8.05% for 2015.
Similarly, the tax credit to help purchase coverage through an Exchange will
be phased out at somewhat higher percentages of household income. Those
percentages are specified in the recent Revenue Procedure.
Employers that have attempted to educate their employees on either the
individual mandate or the federal premium subsidies should be aware of these
adjusted percentages when issuing any new educational
materials.