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Affordable Care Act Affordability

August 21, 2014

When is 9.5% equal to 9.56%?  And for that matter when is 8.0% really 8.05%?  That sounds to me like something that the Riddler might have said to Batman and Robin a couple of decades ago.  Unlike the answer the Riddler was looking for, the answer to this question actually matters.

The answer is – only when we are talking about Affordability under the Affordable Care Act.  Two changes have recently been announced that matter to you and your customers. 

1.  With the ACA, employers with 100 or more full-time equivalents (large employers) are required to provide affordable coverage beginning in 2015 or face penalties if one of their employees goes to the Exchange and receives a subsidy. Employers with 50 – 99 FTEs join the definition of larger employer in 2016 with regard to the employer mandate requirement.  Even though the employer mandate was delayed for a year, the 2014 definition of affordability was set at 9.5% of the employee’s income.  Within the Affordable Care Act, there is also a provision that allows for an adjustment of the definition of affordability.  That adjustment is made by the IRS and they have made an upward adjustment for plan years beginning in 2015 to 9.56%.

2.  The IRS also may adjust the definition of affordability for people looking to get out from under the individual mandate to obtain essential health coverage, and they have done that for plan years beginning in 2015.  In 2015, coverage is determined to be unaffordable if the cost of that coverage exceeds 8.05% of household income.  For 2014, the number was 8.0%.

In short, for your employer customers to avoid an employer mandate penalty, the safe harbor is now 9.56% of household income (cost for single only coverage cannot exceed 9.56% of household income, regardless of actual type of coverage [single, dual, family, etc.). For your customers without group coverage, to avoid the individual mandate the new number is – if coverage costs more than 8.05% of household income, they may claim an exemption.  

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