Benefits and Compensation

Your Health Insurance Premiums May Be Higher than You Realize

By Jamie L. Leary, JD, Steptoe & Johnson PLLC

To avoid triggering excise taxes under the play-or-pay mandate of the Affordable Care Act (ACA), an applicable large employer (ALE) must offer minimum-value health insurance to its full-time employees at affordable premiums, as defined by the ACA.

An ALE is defined very generally in the law as an employer with 50 or more full-time employees, including full-time equivalent employees. Under the ACA, a full-time employee averages at least 30 hours of work per week or 130 hours per month. And health insurance premiums are considered “affordable” if they are no more than 9.5 percent (indexed) of the employee’s household income.

Because an employee’s household income is typically unknown to an employer, the ACA’s play-or-pay regulations provide three affordability safe harbors based on information accessible to an employer: federal poverty level guideline, the employee’s rate of pay, or the employee’s W-2 income. If you are an ALE, you should be familiar with these concepts, particularly as you put them into practice in complying with the ACA’s new reporting requirements.

What may come as a surprise for ALEs is the IRS’s recent announcement that paying additional cash compensation to employees who don’t enroll in your health insurance plan effectively raises your health insurance premiums—perhaps resulting in premiums that no longer qualify as “affordable” for ACA purposes.

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