On January 17, 2020, the Department of Health and Human Services (“HHS”) published its annual update to the Federal poverty guidelines. The poverty threshold increased to $12,760* (based on the annual income of a single-person household), up from $12,490 in 2019. This figure is important to employers sponsoring group health plans for two major reasons:
- Premium Tax Credit (“PTC”). Individuals purchasing health insurance through a Health Insurance Exchange – including employees opting to decline offers of coverage under an employer-sponsored health plan – may be eligible for a PTC, a refundable credit that helps eligible individuals and families cover the premiums for their health insurance. There are several factors that determine eligibility for a PTC, including the requirement that a taxpayer have a household income between 100% and 400% of the Federal poverty line based on family size (limited exceptions apply – speak with your attorney for more information). An employer offering health coverage to its employees should be wary of employees opting out of employer-sponsored coverage and enrolling in coverage through a Health Insurance Exchange – particularly if they receive a PTC – as it can have serious ramifications on the employer shared responsibility provisions of the Affordable Care Act (“ACA”).
- Code Section 4980H(b) Affordability Safe Harbor. Under the ACA, certain employers must offer affordable health coverage to their employees or face assessments under Code Section 4980H. The offer must satisfy two conditions: (a) it must be considered “minimal essential coverage,” and (b) it must be “affordable.” There are several safe harbors available to employers to ensure that offers of coverage are deemed affordable. One such safe harbor is based on the Federal poverty line in effect within six months of the beginning of the plan year for the employer’s group health plan (e.g., for a 2020 calendar year plan, the 2019 Federal poverty line). If the employee’s monthly cost for group health premiums does not exceed 9.78% of the Federal poverty line divided by 12, the employer’s offer of coverage is deemed affordable.
Example: For a 2020 calendar year plan, employer-sponsored health coverage offered to a one-person household is deemed affordable if less than $101.79 per month ($12,490 (2019 Federal poverty line) divided by 12 and multiplied by 9.78%).
As the case with employees receiving PTCs, offering health coverage to employees that is not affordable may trigger substantial assessments under Code Section 4980H of the ACA.
Avoiding assessments under the employer shared responsibility provisions of the ACA can be a tedious exercise. Contact your benefits attorney to review your group health plan to prevent inadvertently making costly compliance errors.
HHS’s annual update is available at this link.
*Includes the 48 contiguous states and the District of Columbia. Review the HHS publication for information applicable to Alaska and Hawaii.