Provide Affordable Health Insurance or Face Penalty
Last week’s inauguration marked halftime in Barack Obama’s historic presidency. The former Illinois Senator promised change when he came to Washington, and change is a promise he certainly kept. His landmark health care law, the Patient Protection and Affordable Care Act, promises to bring universal health care to the United States during the president’s second term. The PPACA will carry this out through sweeping changes and regulations set to impact every U.S. employer. Among these changes, it is crucial for employers to consider the mandate that requires mid to large sized companies to offer their full time employees “affordable” health insurance or face a penalty from the IRS. Below are the guidelines you must follow to determine affordability.
Affordability Safe Harbors
Coverage under an employer sponsored plan is considered affordable if the employee’s contribution for self-only coverage does not exceed 9.5% of their household income for the taxable year. Since most employers do not know an employee’s household income, the proposed regulations provide three optional affordability safe harbors that would apply for purposes of determining whether an employer’s coverage satisfies the 9.5% affordability test.
Form W-2 Wages Safe Harbor
Employers must offer minimum essential coverage to full-time employees (including their dependants), and the required employee contribution for self-only coverage for the lowest cost option that provides minimum value must not exceed 9.5% of the employee’s Form W-2 wages for the calendar year. Wages for this purpose would be the total amount of wages which is required to be reported in Box 1of Form W-2. Box 1 excludes the employee’s pre-tax salary reduction contributions to a 401(k) or 403(b) plan or Section 125 cafeteria plan. If an employee was not a full-time employee for the entire calendar year, an employer would apply the Form W-2 safe harbor by adjusting the employee’s Form W-2 wages and the employee’s contribution. An employer could use this safe harbor prospectively at the beginning of the year to set the employee’s contribution level to not exceed 9.5% of the employee’s Form W-2 wages for that year (for example, by deducting 9.5%, or a lower percentage, from an employee’s Form W-2 wages for each pay period.
Rate of Pay Safe Harbor
The Rate of Pay Safe Harbor allows an employer to take the hourly rate of pay for each eligible hourly, multiply that rate by 130 and determine affordability based on the resulting month wage amount. The employee’s monthly contribution amount is affordable if it is equal or lower than 9.5% of the computed monthly wages. Similarly, salaried employees are determined by multiplying the monthly salary by 130. This safe harbor does not apply if the employer reduces the wages of hourly or salaried employees during the year.
Federal Poverty Line Safe Harbor
The proposed regulations provide that an employer may rely on a design-based safe harbor that is satisfied only if the cost of self-only coverage does not exceed 9.5% of the most recently published federal poverty line for a single individual.
I Want to Learn More
The Beacon Group is teaming up with SorinRand to host a seminar designed to prepare employers for the upcoming impact of the Patient Protection and Affordable Care Act. This program will take place on February 28th at 3pm at the Crown Plaza Hotel in King of Prussia. It is geared toward decision-makers at companies with 50+ employees. Seating will be limited to the first 100 registrants; invitations will be emailed within the next couple of weeks.
Please contact Brian Hart at firstname.lastname@example.org to request an invitation or additional information about our upcoming seminar.