The Affordability Test for 2022 Health Plans

The Affordability Test for 2022 Health Plans

The Affordable Care Act’s employer shared responsibility provision — often called the employer mandate or “play or pay” — requires large employers to offer health coverage to their full-time employees or face a potential penalty. (Employers with fewer than 50 full-time and full-time-equivalent employees are exempt.) Large employers can avoid the risk of any play or pay penalties by offering all full-time employees at least one group health plan option that meets two standards: It provides minimum value and it is affordable.

Minimum value means the plan’s share of total allowed costs is at least 60 percent and the plan provides substantial coverage of physician services and inpatient hospital services.

Affordable means the employee’s required contribution (payroll deduction) for self-only coverage, if elected, does not exceed a certain percentage of the employee’s household income. The affordability percentage changes slightly each year based on the law’s indexing rule. For 2021, the percentage is 9.83 percent. For 2022, however, the percentage decreases to 9.61 percent.

Although the change is minor, it means that employers need to consider whether their plan’s employee-only contribution rate will still meet the affordability standard next year.

Determining Affordability

The first step in determining whether a group health plan option is affordable is to define the employee’s “income.” Employers do not know their workers’ total household income, so the play or pay rules offer employers three optional safe harbor methods to define income using information known to the employer. Employers may use any of the safe harbor methods. They also may use different methods for different classes (such as one method for hourly employees and another method for salaried employees), provided that the chosen method is applied uniformly to all employees in the class.

The three IRS safe harbor methods are:

  1. Federal Poverty Line (FPL)

The FPL method is the easiest of the three methods. Multiply the mainland FPL amount for a single-member household by the affordability percentage, then divide by 12. As long as the self-only contribution rate does not exceed the resulting amount, the plan’s coverage is deemed affordable. For instance:

  • 2021: ($12,760 x 9.83%)/12 = $104.52 per month
  • 2022 ($12,880 x 9.61%)/12 = $103.15 per month

The FPL chart is updated every year in late January. For 2022 calendar-year health plans, the employer needs to refer to the current FPL amount ($12,880) since the new FPL amount will not be available until after the plan year starts. If the health plan year starts February 1, 2022 or later, however, the employer may refer to the new FPL amount which likely will be a little higher.

2. Rate of Pay

This is the most convenient method to define income when applied to hourly employees. Multiply the employee’s hourly rate of pay times 130 hours per month (regardless of how many hours he or she actually works), then multiply by the affordability percentage. As long as the self-only contribution rate does not exceed the resulting amount, the plan’s coverage is deemed affordable. For instance:

  • 2021: ($11* x 130) x 9.83% = $140.57 per month
  • 2022: ($11* x 130) x 9.61% = $137.42 per month

* Replace $11 with the hourly employee’s rate of pay.

For salaried employees, the rate of pay method is somewhat complicated so employers generally avoid using this method for non-hourly employees.

3. W-2

The W-2 method requires using current W-2 wages instead of looking back at the prior year. W-2 wages means the amount that will be reported in Box 1 of Form W-2. Pretax contributions, such as § 125 plan contributions and 401(k) or 403(b) plan deferrals, are not included in Box 1, so using the W-2 safe harbor method may understate the employee’s actual income. Coverage will be deemed affordable if, for each month of the plan year, the self-only contribution does not exceed the Box 1 amount multiplied by the affordability percentage.

Summary

Large employers can avoid the risk of potential penalties under the ACA’s play or pay rules by ensuring that they offer full-time employees at least one minimum value plan option that also is affordable. Affordable means the employee’s contribution to elect self-only coverage would not exceed a certain percentage of the employee’s income.

The percentage used to determine affordability changes from year to year is based on the law’s indexing formula. For 2021 plan years, the affordability percentage is 9.83 percent, but it decreases to 9.61 percent for 2022 plan years. Employers and their advisors will want to keep this information in mind as they finalize their group health plan offerings and employee contribution rates for 2022.


By Kathleen A. Berger, CEBS

Originally posted on Mineral

PCORI Fee Increase for Health Plans

PCORI Fee Increase for Health Plans

On November 5, 2018, the Internal Revenue Service (IRS) released Notice 2018-85 to announce that the health plan Patient-Centered Outcomes Research Institute (PCORI) fee for plan years ending between October 1, 2018 and September 30, 2019 will be $2.45 per plan participant. This is an increase from the prior year’s fee of $2.39 due to an inflation adjustment.

Background

The Affordable Care Act created the PCORI to study clinical effectiveness and health outcomes. To finance the nonprofit institute’s work, a small annual fee — commonly called the PCORI fee — is charged on group health plans.
The fee is an annual amount multiplied by the number of plan participants. The dollar amount of the fee is based on the ending date of the plan year. For instance:

  • For plan year ending between October 1, 2017 and September 30, 2018: $2.39.
  • For plan year ending between October 1, 2018 and September 30, 2019: $2.45.

Insurers are responsible for calculating and paying the fee for insured plans. For self-funded health plans, however, the employer sponsor is responsible for calculating and paying the fee. Payment is due by filing Form 720 by July 31 following the end of the calendar year in which the health plan year ends. For example, if the group health plan year ends December 31, 2018, Form 720 must be filed along with payment no later than July 31, 2019.
Certain types of health plans are exempt from the fee, such as:

  • Stand-alone dental and/or vision plans;
  • Employee assistance, disease management, and wellness programs that do not provide significant medical care benefits;
  • Stop-loss insurance policies; and
  • Health savings accounts (HSAs).

HRAs and QSEHRAs

A traditional health reimbursement arrangement (HRA) is exempt from the PCORI fee, provided that it is integrated with another self-funded health plan sponsored by the same employer. In that case, the employer pays the PCORI fee with respect to its self-funded plan, but does not pay again just for the HRA component. If, however, the HRA is integrated with a group insurance health plan, the insurer will pay the PCORI fee with respect to the insured coverage and the employer pays the fee for the HRA component.
A qualified small employer health reimbursement arrangement (QSEHRA) works a little differently. A QSEHRA is a special type of tax-preferred arrangement that can only be offered by small employers (generally those with fewer than 50 employees) that do not offer any other health plan to their workers. Since the QSEHRA is not integrated with another plan, the PCORI fee applies to the QSEHRA. Small employers that sponsor a QSEHRA are responsible for reporting and paying the PCORI fee.

PCORI Nears its End

The PCORI program will sunset in 2019. The last payment will apply to plan years that end by September 30, 2019 and that payment will be due in July 2020. There will not be any PCORI fee for plan years that end on October 1, 2019 or later.

Resources

The IRS provides the following guidance to help plan sponsors calculate, report, and pay the PCORI fee:

Originally posted on thinkhr.com

Affordable Care Act Update

Affordable Care Act Update

Recently, the President signed a bill repealing the Affordable Care Act’s Individual Mandate (the tax penalty imposed on individuals who are not enrolled in health insurance). While some are praising this action, there are others who are concerned with its aftermath. So how does this affect you and why should you pay attention to this change?
First, as an individual, if you do not carry health insurance, you are currently paying a penalty of $695/adult not covered and $347.50/uninsured child with penalties going even as high as $2085/household. These penalties have been the deciding factor for most uninsured Americans—go broke buying insurance but they have insurance, or go broke paying a fine and still be uninsured. With the repeal signed in December 2017, these penalties are zeroed out starting January 1, 2019.  While it seems that the repeal of the tax penalty should be good news all around, it does have some ramifications. Without reform in the healthcare arena for balanced pricing, when individuals make a mass exodus in 2019, we can expect higher premiums to account for the loss of insured customers.
As a business, you are still under the Employer Mandate of the ACA. There have been no changes to the coverage guidelines and reporting requirements of this Act. However, with healthy people opt-ing out of health insurance coverage, the employer premiums can expect to be raised to cover the increased expenses of the sick. Some do predict the possibility of the repeal of some parts of the Employer Mandate —specifically PCORI fees and employment reporting. The Individual and Employer Mandates were created to compliment each other and so changes to one tend to mean changes to the other.
So, why should you pay attention to this change? Because the balance the ACA Individual Mandate was designed to help make in the health insurance marketplace is now unbalanced. Taking one item from the scale results in instability. Both employers and employees will be affected by this tax repeal in one way or another.

Grandmothers Can Visit a Little Longer

Grandmothers Can Visit a Little Longer

States that permit carriers to renew medical policies without adopting various Affordable Care Act (ACA) requirements may continue to do so through 2019, according to a bulletin released April 9, 2018, by the U.S. Department of Health and Human Services. The bulletin extends transitional relief for non-ACA-compliant policies for another year. The affected category of non-ACA-compliant policies, available in some individual and small group insurance markets, is commonly referred to as grandmothered.
By way of background, the ACA imposes numerous requirements on health plans. Whether a specific requirement applies, however, depends in part on the type of plan – and grandfathers and grandmothers are not the same.

Grandfathers

First, a grandfathered health plan is one that was established no later than March 23, 2010, when the ACA was enacted. The plan can maintain grandfathered status indefinitely, as long as it does not make certain changes to reduce its benefits or increase the employee’s out-of-pocket costs. Basic ACA rules, such as coverage for children up to age 26 and prohibiting annual and lifetime dollar limits on essential health benefits, apply to all plans. A plan that maintains grandfathered status, however, is exempt from many other ACA rules, such as coverage mandates for preventive care, and small group market rules for essential health benefits and adjusted community rating.

Grandmothers

A grandmothered policy does not have grandfathered plan status. It is an individual or small group policy originally issued before 2014 that has been allowed to renew year after year in accordance with the state’s insurance laws. Grandmothering does not apply to policies issued in the large group market. Most states that permit grandmothering also limit small group policies to groups with up to 50 employees.
Depending on the specific state’s rules, a grandmothered policy may be exempt from various ACA rules that otherwise would have taken effect in 2014, such as required coverage for all categories of essential health benefits and adjusted community rating. Currently about 30 states allow some type of grandmothering for individual policies or small group policies, or both, but the details vary from state to state.

States that allow grandmothering may continue to do so for renewals through October 1, 2019, provided the policy ends by December 31, 2019. Note, however, that even if the state’s insurance laws allow grandmothering, carriers are not required to continue renewing non-ACA policies.

What This Means

In summary, state insurance laws continue to control the options, provisions, and requirements that apply to group policies issued in their state. (Self-funded plans are not subject to state insurance laws.) For information about your state’s current insurance laws, refer to a carrier or broker that is licensed to sell products in your state.
Originally posted on ThinkHR.com

All About Medical Savings Accounts

All About Medical Savings Accounts


Taking control of health care expenses is on the top of most people’s to-do list for 2018.  The average premium increase for 2018 is 18% for Affordable Care Act (ACA) plans.  So, how do you save money on health care when the costs seems to keep increasing faster than wage increases?  One way is through medical savings accounts.
Medical savings accounts are used in conjunction with High Deductible Health Plans (HDHP) and allow savers to use their pre-tax dollars to pay for qualified health care expenses.  There are three major types of medical savings accounts as defined by the IRS.  The Health Savings Account (HSA) is funded through an employer and is usually part of a salary reduction agreement.  The employer establishes this account and contributes toward it through payroll deductions.  The employee uses the balance to pay for qualified health care costs.  Money in HSA is not forfeited at the end of the year if the employee does not use it. The Health Flexible Savings Account (FSA) can be funded by the employer, employee, or any other contributor.  These pre-tax dollars are not part of a salary reduction plan and can be used for approved health care expenses.  Money in this account can be rolled over by one of two ways: 1) balance used in first 2.5 months of new year or 2) up to $500 rolled over to new year.  The third type of savings account is the Health Reimbursement Arrangement (HRA).  This account may only be contributed to by the employer and is not included in the employee’s income.  The employee then uses these contributions to pay for qualified medical expenses and the unused funds can be rolled over year to year.
There are many benefits to participating in a medical savings account.  One major benefit is the control it gives to employee when paying for health care.  As we move to a more consumer driven health plan arrangement, the individual can make informed choices on their medical expenses.  They can “shop around” to get better pricing on everything from MRIs to prescription drugs.  By placing the control of the funds back in the employee’s hands, the employer also sees a cost savings.  Reduction in premiums as well as administrative costs are attractive to employers as they look to set up these accounts for their workforce.  The ability to set aside funds pre-tax is advantageous to the savings savvy individual.  The interest earned on these accounts is also tax-free.
The federal government made adjustments to contribution limits for medical savings accounts for 2018.  For an individual purchasing single medical coverage, the yearly limit increased $50 from 2017 to a new total $3450.  Family contribution limits also increased to $6850 for this year.  Those over the age of 55 with single medical plans are now allowed to contribute $4450 and for families with the insurance provider over 55 the new limit is $7900.
Health care consumers can find ways to save money even as the cost of medical care increases.  Contributing to health savings accounts benefits both the employee as well as the employer with cost savings on premiums and better informed choices on where to spend those medical dollars.  The savings gained on these accounts even end up rewarding the consumer for making healthier lifestyle choices with lower out-of-pocket expenses for medical care.  That’s a win-win for the healthy consumer!