How does an employer determine whether the cost of its group health plan meets the affordability requirements under the Affordable Care Act (ACA)?

Author: Brian G. Muse, LeClairRyan

Beginning in 2015, an employer may be subject to a penalty if the coverage it offers does not meet the affordability and minimum value (MV) requirements under the ACA. An employer's coverage is considered affordable if the employee's monthly contribution for single coverage for the lowest cost option available (that also provides minimum value) does not cost the employee more than 9.56 percent or 9.66 percent of the employee's household income for calendar years 2015 and 2016, respectively. An employer may use one of three safe harbor provisions provided by the IRS to determine whether the coverage it offers is affordable.

  1. The Form W-2 Safe Harbor provides that the cost of the coverage is affordable if the cost of single coverage does not exceed 9.56 or 9.66 percent (for the 2015 and 2016 plan years, respectively) of the employee's calendar year wages, as reported in Box 1 of the employee's Form W-2.
  2. The Rate of Pay Safe Harbor provides that coverage is affordable if the employee's monthly contribution for employee-only coverage does not exceed 9.56 or 9.66 percent (depending on the plan year) of the employee's monthly wages.
  3. The Federal Poverty Line Safe Harbor provides that coverage is affordable if the employee contribution for self-only coverage does not exceed 9.56 or 9.66 percent (depending on the plan year) of the federal poverty line for a single person.