The IRS announced that the new Affordable Care Act (ACA) affordability threshold for employers will decrease from 9.83% in 2021 to 9.61% in 2022. An employer that is an Applicable Large Employer or “ALE” under the ACA employer mandate/pay or play rules avoids a potential penalty if at least one of its health plans provides minimum value and is offered at an affordable price to full-time employees (FTEs). A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5% (indexed for inflation) of the employee’s household income. An ALE’s failure to offer coverage that meets the ACA affordability standard for any given FTE creates a potential penalty liability. Many ALEs have received IRS letters informing them of ACA employer mandate pay or play penalty assessments. See this IRS Q&A page for more details on the employer mandate and reporting, and the pay or play penalty assessment process.
Consider Plan Design for 2022
The 2022 ACA affordability percentage applies for the 2022 plan year, so a calendar plan year will have the 9.61% affordability threshold apply for the plan year beginning January 1, 2022. ALEs with a large low-wage workforce might decide to utilize the federal poverty line (FPL) affordability safe harbor to automatically meet the ACA affordability standard, which requires offering a medical plan option in 2022 that costs FTEs no more than $103.14 per month for employee-only coverage. Employers who do not utilize the FPL safe harbor should consider the rate of pay safe harbor which can be well-suited for an employer with a significant number of hourly employees since it assumes a rate of 130 hours per calendar month no matter how many hours an employee actually works. This approach considers the lowest hourly rate of pay for hourly FTEs and the lowest monthly salary for salaried FTEs, and then applies the applicable affordability percentage (9.61% for 2022) based on two separate tests—one for hourly FTEs, and one for salaried FTEs.
Employer Next Steps
Determining whether employer-sponsored health plans meet the ACA affordability and minimum value standards remains a significant factor in determining potential liability for pay or play/employer mandate penalties. Therefore, ALEs must stay updated on their compliance with the always evolving ACA rules and regulations. When planning for the 2022 plan year, ALEs should confirm that at least one of their minimum value plans meets one of the affordability safe harbors for each of its FTEs in order to avoid a potential pay or play penalty.
Your Conner Strong & Buckelew account team will continue to work with you to implement and understand the complex requirements of the ACA. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.