ACA Challenges–What’s ‘Affordable’ and What’s ‘Minimum’ Coverage?

Under what circumstances will an employer owe an Employer Shared Responsibility payment?

In 2014, says Simon, senior legal editor at BLR®,  if an employer meets the 50 full-time employee threshold, the employer generally will be liable for an Employer Shared Responsibility payment only if either:

  • The company doesn’t provide coverage to substantially all (95% or more) of employees (or doesn’t provide coverage at all), and at least one of the full-time employees receives a premium tax credit to help pay for coverage on an Exchange (4980H(a) liability), or
  • The employer offers health coverage to at least 95% of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange (4980H(b) liability). This may occur because the employer did not offer coverage to that employee or because the coverage the employer offered to that employee was either “unaffordable” to the employee (see below) or did not provide “minimum value” (see below).

In both cases, at least one employee must have gone to the exchange and received a premium tax credit.

How does an employer know whether the coverage it offers is “affordable”?

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee.

If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement (see below.)

Because employers generally will not know their employees’ household incomes, employers can take advantage of one of the affordability safe harbors set forth in the proposed regulations:

  • W-2 test. An employer can avoid a payment if the cost of the coverage to the employee would not exceed 9.5% of the wages the employer pays the employee that year, as reported in Box 1 of Form W-2.
  • Actual rate of pay test.
  • Federal poverty limit test.

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How does an employer know whether the coverage it offers provides “minimum value”?

A minimum value calculator will be made available by the IRS and the Department of Health and Human Services (HHS). Employers can put certain information about the plan, such as deductibles and co-pays, into the calculator and see a determination as to whether the plan provides minimum value by covering at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.

Is more detailed information available?

Yes. The U.S. Treasury and the IRS have proposed regulations on the new Employer Shared Responsibility provisions. Comments on the proposed regulations may be submitted by mail, electronically, or hand-delivered, and are due by March 18, 2013.

The complete Q&A may be found here:
IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act

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  • Barb

    When is the minimum value calculator expected to be available?

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