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Affordability Percentages Will Decrease for 2020

On an annual basis, the Internal Revenue Service (IRS) issues affordability percentages for employer-sponsored health plans under the Affordable Care Act (ACA). As health care costs continue to rise, it is easy for an employer to pass along costs to employees by means of premium. However, due to affordability percentages, if premiums climb too high, an employer can expose itself to a potential penalty. For this reason, it is important that on an annual basis you check to ensure that your plans do not exceed the affordability percentages set by the IRS.

Under the pay or play rules and premium tax eligibility for plan years beginning on or after January 1, 2020, an employee’s contribution for self-only coverage cannot exceed 9.78% of their household income. Under the individual mandate for 2020, the employee’s contribution cannot exceed 8.24% of their household income. While the individual mandate was reduced to zero beginning in 2019, individuals may still need to seek exemption for 2019 and future years to be eligible for services such as catastrophic coverage in the ACA market. This year’s affordability percentages are unique because this is the first time since their inception that they have decreased from the previous year’s values of  9.86% and 8.3% respectively.

It is important to note that the test for determining a plan’s affordability for pay or play rules, premium tax credit eligibility, and the individual mandate varies for each provision. This “ACA Compliance Bulletin” describes the history and details involved with the determination of each provision.

Contact your Cowden representative for more information on this or other compliance issues.

Read the ACA Compliance Bulletin