ACA Compliance: Pay Attention to 2018 Affordability Safe Harbors

By now you know that the Affordable Care Act (ACA) is alive and well despite 2017's tax legislation eliminating the individual mandate beginning in 2019. As an employer, your mandate is still in full force. You are required to offer qualifying health insurance to all eligible employees as long as your business meets certain criteria of its own.
 
This year, there is a new threshold for what is known as the shared responsibility affordability (SRA) percentage. In other words, employers are required to calculate the most affordable health insurance options for their lowest paid employees, then offer at least one affordable plan. Below is an explanation of the 2018 changes.
 

The Threshold Has Been Reduced

 
The SRA threshold is essentially a number that determines the affordability of a given health insurance plan. Through 2017, the most affordable self-only plan could not exceed 9.69% of an employee's total household income for that year. If an employee made $20,000 for example, his total cost for health insurance in 2017 could not exceed $161.50/month.
 
The threshold has been reduced to 9.56% for the 2018 tax year. That means your company should have evaluated health insurance plans last year in anticipation of open enrollment at the end of 2017. If you did not, you may not be in compliance for this tax year.
 

Safe Harbor Calculations

 
Given that it is not always possible to know an employee's total household income, the ACA allows for use of safe harbor calculations. Calculations can be based on several different things:
 
W-2 Wages – Employers may use wages reported on W-2 forms as a basis for determining SRA. However, wages must be based on the first day of the insurance plan year.
 
Hourly Pay Rates – Employers may use an hourly pay rate calculated by multiplying an employee's hourly wage by 130 total hours. Again, this calculation is based on wages as of the first day of the insurance plan year.
 
Federal Poverty Level – The most utilized safe harbor is the Federal Poverty Level (FPL). Employers use the numbers from the six months leading up to the start of a new insurance plan year. Using the FPL for the last six months of 2017 for the 2018 health insurance year would set a standard income level of $12,060.
 
Note that a safe harbor calculation using the FPL is usually based on the previous year given that actual poverty numbers are not released by the federal government until the start of the new year.
 

Preparing for Next Year

The affordability safe harbors have already been announced for 2019
 
It may seem odd for us to be talking about 2018 insurance plans now that we are more than halfway through the current year. The point is this: if you were caught off guard by changes to the SRA for the 2018 health insurance plan year, be warned that now is the time to begin preparing for 2019.
 
You are still required to offer qualifying health insurance plans irrespective of the elimination of the individual mandate for 2019. Do not even risk being caught off guard when the new insurance plan year begins. Now is the time to make sure all your ducks are in a row – before open enrollment begins in the fall.
 
There are a lot of moving parts to the ACA, so much so that compliance can be difficult for employers. We are here to help. BenefitMall specializes in all things payroll, including ACA compliance. We urge you not to take any chances if you do not understand how this complex law applies to you. Let us handle it for you.