IRS sets 2023 health plan premium affordability threshold at 9.12% of salary
The IRS has announced the 2023 Health Plan Affordability Threshold – used to determine whether an employer’s lowest health plan meets the affordability requirement of the Affordable Care Act (ACA) – will be 9.12 per cent of an employee’s “household income”, down from the 2022 limit of 9.61 per cent.
The new affordability threshold rate was included among the health plan’s tax provisions in IRS Tax Procedure 2022-34, released July 25. growth versus income growth, using national health care spending data from the Centers for Medicare and Medicaid Services.
The adjusted percentage applies on a plan year basis, not a calendar year, and non-calendar year plans will continue to use 9.61% to determine affordability in 2023 until the start of their new plan year.
Under the federal safety threshold frequently used to determine “household income” versus affordability:
The highest premium for an employer’s lowest cost 2023 plan will be $103.28 per month, based on a retrospective 2022 FPL of $13,590 in annual income. (The regulations allow employers to use the published FPL rate in effect six months before the start of the plan year.)
This is virtually the same as the 2022 plan year maximum premium of $103.15 per month, based on a retrospective 2021 FPL of $12,880.
For group health plan options available to employees during the next open enrollment period in the fall, “employers should review the required employee contribution for 2023 coverage if they plan to meet the limit. ACA’s affordability under the applicable safe harbor,” explained an alert from Dorian Z. Smith, a partner at human resources consulting firm Mercer in New York, and Cheryl Hughes, director of the Washington office. , DC.
Brian Gilmore, senior benefits attorney at Newfront, an insurance and financial services company in San Francisco, wrote in an alert that “employers with a calendar year plan offering a medical plan option in 2023 that does not costs employees no more than $103.28 per month – only coverage will automatically meet the ACA’s affordability standard under the Federal Poverty Level Affordability Safe Harbor which deems coverage affordable to all full-time employees.
He added: “Where possible, within budget constraints, employers should be prepared to offer at least one medical plan option to full-time employees in all regions with a share of the premium from the employee not to exceed $103.28/month for employee-only coverage to simplify affordability and meet the federal poverty line safety threshold.”
Household Income Safe Ports
“The IRS recognized that an employer would have no way of determining an individual’s household income. Therefore, the IRS has created three affordable safe harbors that an employer can use to meet the threshold for ’employer affordability,’ according to an alert from Accord Systems LLC. , an ACA compliance software company. “An employer wishing to use one of the Affordable Safe Harbors will use the 9.12% accessibility threshold for 2023 to determine whether the Safe Harbor has been met.”
The three safety spheres for household income are:
Athe employee’s W-2 salaries, as shown in Box 1, usually on the first day of the plan year. Form W-2 affordability’s safe harbor “provides little predictability because salaries for Box 1 employees are unknown until January of the following year,” Gilmore pointed out.
An employee’s rate of pay, which applies the affordability threshold percentage based on two separate tests, one for full-time employees and one for full-time employees.
The federal poverty line, as published annually by the Department of Health and Human Services. The 2022 FPL is $13,590 for individuals (although slightly different for employees in Hawaii and Alaska). For calendar year 2023 plans, the FPL of $13,590 is divided by 12 and multiplied by 9.12%, which equals an authorized monthly premium of $103.28, rounded to the nearest penny.
Choosing a Safe Harbor
Large Relevant Employers (LEAs) – those with 50 or more full-time or equivalent employees – are subject to the ACA’s shared liability coverage mandate. These employers should always use the FPL safe harbor when available, because it results in coverage automatically being considered affordable with no per-employee calculation required, Gilmore advised.
Employers who don’t offer a medical plan option that meets the FPL safe harbor, he noted, should instead use the pay rate safe harbor, which “requires simple analysis” of the rate of pay. lowest hourly pay for full-time hourly employees. and the lowest monthly salary for full-time employees.
Although more complicated to calculate, the pay rate safe harbor generally allows for higher bonuses, Gilmore noted, as in the following examples he gave for a 2023 calendar year plan:
If the lowest paid hourly employee earns $15 per hour, the maximum premium would be $177.84 per month.
If the lowest paid full-time employee earns $36,000, the maximum premium would be $273.60 per month.
LEAs that do not offer an affordable plan and provide minimum essential coverage to at least 95% of their full-time workers and dependents may be subject to employer sanctions under section 4980H(a) of the Internal Revenue Code. This year, Section 4980H(a) penalties are $229.17 per month or $2,750 annualized per employee.
Plans that aren’t “affordable” and don’t provide a minimum value may be subject to Section 4980H(b) penalties, which this year are $343.33 per month, or $4,120 annualized, per employee.
In January, the IRS will make inflation adjustments to these penalties for the 2023 plans.
Some employees have the option of participating in workplace wellness programs that reduce their health plan premiums, sometimes conditional on meeting specific health goals.
“In determining whether the amount of personal contribution meets affordability, except for wellness programs designed to prevent or reduce smoking, affordability will be determined assuming that each employee does not meet the requirements of the wellness program,” noted HR consultancy Buck. in a message from Richard Stover, Corporate Director, and Randie Thompson, Corporate Compliance Officer.
“For wellness programs designed to reduce or prevent smoking, affordability can be determined assuming that each employee meets the wellness program requirements,” the consultants explained. “If the plan has an opt-out credit for waiver of coverage, that credit should generally be added to the personal contribution amount only to determine affordability.”