ACA’s Affordability Threshold Rises in 2019

Employers should not overlook the Affordable Care Act's (ACA's) annual inflation-adjusted shift in cost-sharing limits for group health plan coverage, as they could face steep penalties for failing to provide affordable coverage under the ACA's shared-responsibility provisions.

On May 21, the IRS announced in Revenue Procedure 2018-34 the 2019 shared-responsibility affordability percentage. Based on the ACA's affordability standard as adjusted for inflation, health coverage will satisfy the requirement to be affordable if the lowest-cost self-only coverage option available to employees does not exceed 9.86 percent of an employee's household income, up from 9.56 percent in 2018.

For 2019 calendar-year plans using the federal poverty level (FPL) safe harbor to determine affordability, an employee's premium payment can't exceed $99.75 per month, up from $96.08 per month in 2018.

An Annual Adjustment

The affordability standard is the highest percentage of household income an employee can be required to pay for monthly plan premiums, based on the least-expensive employer-sponsored plan offered that meets the ACA's minimum essential coverage requirements.

Employers should consider the affordability standard in developing their 2019 health care plan cost-sharing strategies, since pricing at least one plan option below the threshold will avoid triggering employer-shared responsibility penalties under Section 4980H(b), which the ACA added to the tax code, said Ryan Moulder, a Los Angeles-based partner at Health Care Attorneys PC and general counsel at Accord Systems LLC, an ACA compliance software firm.

"An employer is in control as to whether the plan it is offering meets the affordability threshold," Moulder explained. "The significant increase [for 2019] compared to 2018 provides an employer that is toeing the line of the affordability threshold an opportunity to increase the price of its health insurance while continuing to provide affordable coverage."

Affordability Safe Harbors

Since employers don't know their workers' household incomes, to which the affordability threshold applies, the ACA created three safe harbors, any of which can be used in place of household income:

• The employee's W-2 wages—as reported in box 1—generally as of the first day of the plan year (see IRS Questions and Answers).
  

• The employee's rate of pay—hourly wage rate multiplied by 130 hours per month—as of the first day of the plan year.
  

• The individual federal poverty level as of six months prior to the beginning of the plan year, since the FPL isn't published for a given year until January.
  

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

2019 FPL Safe Harbor

Many employers use the FPL safe harbor to develop employee contributions for self-only coverage to avoid ACA penalties under Section 4980H(b).

"Using the FPL safe harbor also simplifies ACA reporting and coding of Form 1095-C," which plan sponsors file with the IRS for each employee offered ACA-compliant health coverage, wrote Richard Stover and Leslye Laderman, consultants with Conduent HR Services, in their recent analysis.

For 2019, the maximum monthly premium contribution that meets the FPL safe harbor will be 9.86 percent of the prior year's federal poverty level ($12,140 in most states for 2018) divided by 12, or $99.75.

Shared-Responsibility Penalty

The IRS can impose a shared-responsibility penalty when an employer with 50 or more full-time or equivalent employees—known as an applicable large employer (ALE)—"fails to offer minimum essential coverage to substantially all of its full-time employees and their dependent children during a month and at least one full-time employee receives a premium tax credit" through the ACA's public marketplace exchange. An ALE satisfies the "substantially all" standard for any given month if it offered coverage to at least 95 percent of its full-time employees and their dependent children during that month.

For 2019, Stover and Laderman noted that actuaries estimate that the Section 4980H(b) penalty for failure to offer affordable, minimum-value coverage will be $3,750 per employee (or $312.50 per month), up from $3,480 (or $290 per month) in 2018.

Additional Cost-Sharing Limits

For 2019, there are other ACA cost-sharing limits that employers must keep in mind.

Minimum Value:

An ACA-compliant plan must provide minimum value by having an actuarial value of at least 60 percent, the statute states, meaning the plan pays for at least 60 percent of covered benefits.

"An actuary will determine whether the minimum-value threshold has been satisfied," Moulder said.

Out-of-Pocket Maximums:

Nongrandfathered group health plans must comply with an annual limit on cost-sharing, known as an out-of-pocket (OOP) maximum, which is set by the Department of Health and Human Services (HHS). This limit takes into account an employee's spending under the plan deductible, as well as co-payments and percentage-of-cost co-sharing payments, but not plan premiums.

Last December, HHS announced that for the 2019 plan year, the OOP maximum will be $7,900 for self-only coverage and $15,800 for family coverage. In addition, the self-only OOP maximum is applied to each covered individual, whether the individual is enrolled in self-only coverage or family coverage.

The IRS annually sets a separate and lower OOP maximum exclusively for high-deductible health plans (HDHPs) that can be coupled with health savings accounts (HSAs), known as HSA-qualified HDHPs. 

Below are the two sets of limits for 2019 compared with 2018.

Related SHRM Articles:

2019 HSA Limits Rise, IRS Says, SHRM Online Benefits, May 2018

For 2019, 401(k) Contribution Limit for Employees Rises to $19,000, SHRM Online, November 2018

2019 Payroll Taxes Will Hit Higher Incomes, SHRM Online, October 2018