Affordability Percentages Will Decrease for 2020

Sep 3, 2019 | Compliance

For plan years beginning in 2020, employer-sponsored medical coverage will be considered affordable if the employee’s contribution for self-only coverage on an employer’s lowest cost medical plan (if more than one medical plan is offered) does not exceed 9.78% of the employee’s household income for the year.

Under Healthcare Reform’s employer-shared responsibility (Pay or Play rules), applicable large employers (ALEs) who have 50 or more full-time employees or full-time equivalents are required to offer affordable, minimum value coverage to all full-time employees (and dependents) or face penalties. It is important to know if an employer-sponsored plan is affordable to avoid potential penalties but also if employees are eligible for affordable employer-sponsored coverage, they are generally not eligible for a premium tax credit on the health exchanges. 

Since it may be difficult for employers to know an employee’s household income, affordability may be assessed using an affordability safe harbor. The three safe harbor measures include:

  1. Form W-2 wages
  2. Employee Rate of Pay
  3. Federal Poverty line (for a single individual)


What Employers Should Know

Employers offering employer-sponsored medical plans, should work with their consultant to ensure that its plan(s) meet the decreased affordability threshold beginning in 2020.

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