Below are details on these changes.
Affordability threshold for 2020
Employer-based health insurance offered for plan year 2020 will be deemed affordable under the ACA if the lowest-cost self-only coverage does not exceed 9.78% of the employee’s annual household income — decreasing from 9.86% for plan year 2019.
Recognizing that employers usually do not know employees’ true household income, the IRS developed three safe harbors that applicable large employers (ALEs) can use to determine whether the ACA’s affordability threshold has been met:
- Form W-2 safe harbor (based on the employee’s W-2 Box 1 wages).
- Rate of pay safe harbor (hourly rate of pay multiplied by 130 hours per month).
- Federal Poverty Level safe harbor.
The new, lower affordability threshold may result in some employees paying less for self-only coverage.
Let’s assume you use the rate of pay safe harbor for the 2020 plan year, and the employee earns $14 per hour. You can charge the employee up to $178 monthly for health coverage ($14 x 130 hours x 9.78%). For the 2019 plan year, however, you can charge him or her up to $180 monthly ($14 x 130 hours x 9.86%).
If you use the Federal Poverty Level safe harbor, the employee’s monthly premiums cannot exceed 9.78% of the FPL. The 2019 FPL for most states is $12,490. Therefore, for plan year 2019, the maximum monthly premium for the lowest-cost self-only coverage is $101.79 ($12,490 x 9.78% / 12).
If your plan year starts after Jan. 1, 2020, the 2020 FPL applies. The HHS should issue 2020 FPL guidelines around January or February of 2020.
Employer shared responsibility penalties for 2020
Like the affordability threshold, penalties for ACA noncompliance are adjusted annually for inflation. According to the American Payroll Association, the 2020 penalties are $2,570 (“A” penalty) and $3,860 (“B” penalty) — up from $2,500 and $3,750, respectively, for 2019.
The 2020 “A” penalty ($2,570) is for employers who fail to offer Minimum Essential Coverage to 95% of full-time employees. The 2020 “B” penalty ($3,860) is for employers who fail to offer Minimum Value or affordable coverage.
Annual out-of-pocket limits
For ACA-compliant health plans, the out-of-pocket maximum for 2020 is $8,150 for self-only coverage and $16,300 for family coverage — up from $7,900 and $15,800, respectively, for 2019.
With the new limits and penalties now released, ALEs can start planning for 2020. For additional information, contact your employee benefits advisor.
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