Jan. 1, 2014, sounds far away, but some plan sponsors may be hoping that day never comes. That’s the day the “shared responsibility provisions” of the Patient Protection and Affordable Care Act (PPACA) kick in; and it’s the time plan sponsors become subject to health reform’s “unaffordable coverage trigger.”
Under the law, if an employee’s group health plan contribution is “unaffordable,” a participant will be able to quit a group health plan and seek coverage through a state-run health insurance exchange. Employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees may be required to pay an assessment under §4980H(b) of the PPACA. “Unaffordable” coverage also makes employees eligible for a premium tax credit.
Employers will have to report to the IRS and health insurance exchanges how much they and their employees pay for their employer-sponsored health coverage.
The IRS and the exchanges will then determine whether employees’ coverage is unaffordable. The exchanges will notify employers if coverage is unaffordable. Assistant Secretary of Labor Phyllis Borzi said in March 2011 this proposed system would rely on new definitions and data flows that don’t exist for IRS.
An issue that bothered employers was that the law mandated that affordable coverage be calculated with reference not to the employee’s salary, but to the employee’s household income. The employer would have to get new kinds of information and perhaps never be sure it got the whole picture.
To remedy this, IRS announced on Sept. 13 announced in Notice 2011-73 that it is seeking public comments on a proposed affordability safe harbor for employers. The safe harbor would allow employers to measure affordability by using wages that the employer paid to an employee, instead of the employee’s household income. To avoid trouble under this scenario, the employee portion of the self-only premium for the employer’s lowest cost coverage (that offers minimum required benefits under government’s rules) would have to not exceed 9.5 percent of the employee’s W-2 wages.
Comments can be e-mailed to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-73” in the subject line. More information is available by calling Mireille Khoury of the Office of Division Counsel at (202) 622-6080.