What’s ‘Affordable,’ What’s ‘Value’ under the ACA?

[Go here for yesterday’s Q&A]

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. Under the safe harbors, 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, or if the coverage satisfies either of two other design-based affordability safe harbors. 

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 input certain information about the plan, such as deductibles and co-pays, into the calculator and get a determination as to whether the plan provides minimum value by covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

When can an employee receive a premium tax credit?

Premium tax credits generally are available to help pay for coverage for employees who:

• Are between 100% and 400% of the federal poverty level;
• Enroll in coverage through an Affordable Insurance Exchange;
• Are not eligible for coverage through a government-sponsored program like Medicaid or CHIP; and
• Are not eligible for coverage offered by an employer or are eligible only for employer coverage that is unaffordable or that does not provide minimum value.

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How will penalty assessments work?

The IRS will contact employers to inform them of their potential liability for shared responsibility payments and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after employees’ individual tax returns are due for that year claiming premium tax credits and after the due date for employers that meet the 50 full-time employee (plus full-time equivalents) threshold to file the information returns identifying their full-time employees and describing the coverage (if any) that was offered.

If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.

Is more detailed information available?

Yes. 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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