Finding Safe Harbor from the Employer Mandate

By: Setnor Byer Insurance & Risk  01/23/2013
Keywords: Insurance, Health Insurance, Insurance Agencies

Under the Affordable Care Act’s Employer Shared Responsibility provisions, “large” employers with at least 50 full-time equivalent employees may be subject to a penalty of up to $3,000 per year for each full-time employee in excess of 30. An employer may avoid the penalty by offering health coverage to at least 95% of its full-time employees (and dependents) under an “affordable” plan that provides “minimum value.”

 

A plan will generally satisfy the “minimum value” requirement if it covers at least 60% of health care costs. To be considered “affordable,” the employee’s required contribution for employee-only coverage cannot be more than 9.5% of the employee’s household income for the taxable year.

 

In the context of determining whether a plan satisfies the affordability requirement, the Internal Revenue Service recognized the likely inability of employers to ascertain the household income for each of its employees. As a result, the proposed regulations recently published by the IRS allow employers to take advantage of three safe harbor provisions.

 

Form W-2 Safe Harbor

 

Application of the Form W-2 Safe Harbor, which is determined after the calendar year on an employee-by-employee basis, takes into account the employee’s Form W-2 wages and the employee contribution.

 

An employer will not be assessed a penalty for an employee if the required annual contribution for the employer’s cheapest employee-only coverage plan is not more than 9.5% of that employee’s Form W-2 wages from the employer. If an employee is not offered coverage for an entire calendar year, the Form W-2 wages can be adjusted to reflect the period for which coverage was offered.

 

To avoid manipulation, the proposed regulations provide that the employee’s required contribution must remain consistent during the calendar year and that an employer cannot make discretionary adjustments to the required employee contribution for a pay period.

 

Rate of Pay Safe Harbor

 

Under the Rate of Pay Safe Harbor, an employer: takes the rate of pay for each hourly employee who is eligible for coverage under the plan as of the beginning of the plan year; and multiplies that rate by 130 hours (the benchmark for monthly full-time status) to compute the employee’s monthly wages.

 

If the employee’s monthly contribution amount for the cheapest employee-only coverage plan is not more than 9.5 percent of the computed monthly wages, then the coverage is considered affordable. For salaried employees, monthly salary would be used to determine affordability.

 

The Rate of Pay Safe Harbor allows employers to prospectively determine affordability without having to analyze every employee’s wages and hours. However, it may only be used for those employees who did not have their hourly wages or monthly salaries reduced by the employer during the year.

 

Federal Poverty Line Safe Harbor

 

Under the Federal Poverty Line (FPL) Safe Harbor, coverage is considered affordable if the employee’s cost for the cheapest employee-only coverage plan is not more than 9.5% of the FPL for a single individual. Under the regulations, employers may use the most recently published poverty guidelines for the first day of the plan year.

 

These safe harbors are optional. Large employers may use one or more of these for all employees or for any reasonable category of employees, provided they are used uniformly and consistently for all employees in a category.

 

The IRS will be accepting comments on these proposed regulations until March 18, 2013.

 

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, .

 

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Keywords: Affordable Care Act, Business Insurance Needs, Commercial Insurance, Health Insurance, Insurance, Insurance Agencies, Insurance Exchanges, Insurance Products And Services, Proven Risk Management, Risk Management,

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