By Yana Lender
2021 is almost over and for many, that means that it’s time to prepare for open enrollment. As you know, open enrollment is the annual period, generally in the fall, when employees elect their health insurance benefits for the upcoming calendar year. As a benefits professional, you will soon be providing new health plan details, including costs, to your enrollees. Please read on for how those health plan details – and costs! – affect your organization’s compliance with the Affordable Care Act (ACA).
Will the plans offered be affordable under the ACA for the 2022 filing year?
This should be one of the first questions employers ask and it is critical to have a definitive answer. The affordability penalty for the 2022 filing year is projected to be $4,120 annually or $343.33 per month.
What does that mean?
It means that if an employer offers an unaffordable health plan (single lowest cost used on line 15 of the 1095C form) and the employee waives that offer and enrolls into subsidized coverage (aka The Exchange), the employer will be penalized for every month for which coverage was unaffordable and the employee was enrolled into subsidized coverage.
The 2022 Affordability Percentage was released in September 2021 and decreased from 9.83% (2021) to 9.61% in 2022.
To help you decide if your organization’s offers are affordable, here are some cases to consider:
Example 1:
Peter is an hourly employee making $13.50 per hour. His employer offers a high deductible health plan (HDHP) at $178.95 per month as his lowest cost single plan option. Here is how the affordability is calculated:
Hourly Rate x 130 Hours (ACA FT hours threshold) x 9.61% = Affordable Single Plan
$13.50 x 130 x 9.61% = $168.66
As you can see, Peter can only afford a plan that would cost $168.66 per month and not the HDHP offered by the organization with a monthly cost of $178.95.
Example 2:
Lucy is a salaried employee making $22,598 per year. Her employer offers an HDHP at $178.95 per month as her lowest cost single plan option. Here is how the affordability is calculated:
(Annual Salary/12 months) x 9.61% = Affordable Single Plan
($22,598.00/12) x 9.61% = $180.97
As you can see, Lucy can barely afford the HDHP offered by the organization with monthly cost of $178.95.
To minimize employer risk for the potential affordability penalties if Peter or Lucy were to waive company coverage:
- Review all hourly pay rates and salaries and make sure your compliance provider (Paragon Compliance clients, please review with your Solutions Specialist) has an accurate representation of your workforce.
- Make sure that you have a waiver on file from Peter (and any employees in the same pay rate category) where he indicates his alternative coverage.
- If Peter indicates that he has chosen to enroll in subsidized coverage, please alert your compliance provider. If you are a client of Paragon Compliance LLC, please contact your Solutions Specialist right away.
- You can use the W-2 Box 1 amount when filing 2022 1095C forms if you expect Peter to work a lot more than the IRS ACA FT hours threshold of 130 hours per month. In this instance, you would be able to utilize the W-2 affordability method rather than Rate of Pay affordability method.
- Your compliance provider should present you with potential penalties for all the months of unaffordable coverage in the 2022 filing year. Paragon Compliance provides a report to its clients that calculates the employer’s risk with a potential penalty amount.
Penalties can be scary and confusing, but with the experts at Paragon Compliance, your fears will be reduced or even eliminated altogether! Please contact us to see how we can help you in the filing year 2021 and beyond.