On May 5, 2017, the Internal Revenue Service (IRS) issued Revenue Procedure 2017-36 to index the contribution percentages in 2018 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA).
For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage complies with the following:
- Does not exceed56 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility
- Does not exceed05 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance)
This is the first time since these rules were implemented that the affordability contribution percentages have been reduced. As a result, some employers may need to reduce their employee contributions starting Jan. 1, 2018, to meet the adjusted percentage.
Employer Shared Responsibility Rules
The affordability of health coverage is a key point in determining whether an applicable large employer will be subject to a penalty. Employers may use an affordability safe harbor to measure affordability of their coverage. The three safe harbors measure affordability based on Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line for a single individual.
The affordability test applies only to the portion of the annual premiums for self-only coverage, and does not include any additional cost for family coverage.
Individual Mandate Exemption
The ACA’s individual mandate requires most individuals to obtain acceptable health coverage for themselves and their family members or pay a penalty. However, individuals who lack access to affordable minimum essential coverage are exempt from the individual mandate.
This affordability contribution percentage was adjusted to 8.05 percent for plan years beginning in 2015, 8.13 percent for plan years beginning in 2016, 8.16 percent for plan years beginning in 2017 and 8.05 percent for plan years beginning in 2018.