Get access to the exclusive HR Resources you need to succeed in 2018.
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 14 cities across the U.S. this fall.
Gain the skills you need to rise to the next level in your career. Jon us at SHRM's Leadership Development Forum, October 2-3 in Boston.
IRS annually caps employees’ share of least-expensive health plan premiums
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
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:
[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.
Plan Calendar Year
Prior Year’s Federal Poverty Level
Maximum Monthly Contribution (Self Coverage)
Sources: IRS and Conduent HR Services.
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.
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.
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.
Out-of-pocket limits for ACA-compliant plans (set by HHS)
Out-of-pocket limits for HSA-qualified HDHPs (set by IRS)
Related SHRM Article:
2019 HSA Limits Rise, IRS Says,
SHRM Online Benefits, May 2018
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Choose from dozens of free webcasts on the most timely HR topics.
SHRM’s HR Vendor Directory contains over 10,000 companies