Things to Know about Affordability rules for ACA Reporting in 2020

Although there have been attempts by the Trump administration to repeal the Affordable Care Act (“ACA”), it is still in effect and there is important information you should be aware of for 2020 ACA reporting.  As always, healthcare costs need to be affordable under the new 2020 guidelines.

If you are an Applicable Large Employer (“ALE”), which is a company that employs 50 or more full-time, or full-time equivalent employees, healthcare cost for single-only coverage cannot exceed 9.78% of household income for 2020.   There are three ways to measure affordability under the ACA. If an employer satisfies affordability under one of these three safe harbors, their insurance is considered affordable.

  1. The Federal Poverty Level (“FPL”) Safe Harbor:  The federal poverty level for 2020 is $12,760 for the continental U.S.  The federal poverty level safe harbor is calculated by multiplying $12,760 by .0978 and dividing by 12.  To use the federal poverty level safe harbor, the monthly cost for single-only coverage should not exceed $103.99 per month, (12,760 x .0978)/12).
  2. W-2 Safe Harbor:  This is based on household income for Box 1 – Wages, from the W-2 Form.  For example, if an employee had an annual salary of $45,000 a year, you would check affordability by multiplying their salary by .0978 and dividing by 12 to get the maximum amount the employee should pay for single-only coverage per month.  In this scenario, the employee should not pay more than $366.75 per month, ((45,000 x .0978)/12)
  3. Rate of Pay Safe Harbor: This is most useful for hourly employees. To utilize the Rate of Pay safe harbor, you should multiply an hourly worker’s lowest rate of pay by 130 hours (for rate of pay employer assumes 130 hours per month regardless of the number of hours worked) and the cost should not be more than 9.78% for single-only coverage. For example, an employee earning $15/hour should not pay more than $190.71 per month, ((130 x $15) x .0978). 

If insurance premiums are not considered affordable, the employer can be penalized.  The penalty for 2020 is $3,860.00 per employee per year.  This is applied to all employees and not just the employees who were not offered affordable coverage.  Typically, this penalty is discovered when an employee, who is classified as full-time, has received a premium tax credit, or has gone onto the Marketplace for coverage.  These penalties can be significant, so it is important that companies evaluate their workforce and healthcare plans to determine which safe harbor makes the most sense for their organization when it comes to ACA reporting.

To learn more about ACA compliance and what affordability safe harbor might best fit your needs, please contact SPS/GZ at or call (888)375-3049.

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