Key takeaways: the Internal Revenue Service (IRS) lowered the employer health plans’ 2020 affordability threshold and the Department of Health and Human Services (DHHS) released ACA employer penalties and out-of-pocket limits for 2020.
Here are the details:
Lower affordability threshold for 2020
Employer-based health insurance offered for 2020 is deemed affordable under the ACA if lowest-cost, self-only coverage does not exceed 9.78% of an employee’s annual household income (that’s a decrease from 9.86% in 2019).
The IRS offers three “safe harbor” methods to estimate income and determine whether the ACA affordability threshold is met:
- Form W-2 (based on wages listed in the employee’s W-2, Box 1).
- Rate of pay: hourly pay rate multiplied by 130 hours per month.
- Federal poverty level (FPL): determines coverage is affordable for the month if the employee required monthly contribution doesn’t exceed 9.5 %, adjusted annually, of the federal poverty line for a single individual for the applicable calendar year, divided by 12.
Under this lower affordability threshold, some employees may pay less for self-only coverage.
For example, under the 2020 rate of pay safe harbor, employers can charge an employee earning $14 per hour up to $178 monthly for health coverage ($14 x 130 hours x 9.78%). For the 2019 plan year, you can charge them up to $180 monthly ($14 x 130 hours x 9.86%).
Under the FPL safe harbor, an employee’s monthly premiums cannot exceed 9.78% of the FPL. The 2019 FPL for most states is $12,490. For plan year 2019, the maximum monthly premium for the lowest-cost self-only coverage is $101.79 ($12,490 x 9.78% / 12).
If your plan year starts after Jan. 1, 2020, the 2020 FPL applies. The DHHS should issue 2020 FPL guidelines around January or February of 2020.
Employer shared responsibility penalties for 2020
Like the affordability threshold, penalties for ACA noncompliance are adjusted annually for inflation. According to the American Payroll Association, the 2020 penalties are $2,570 (“A” penalty) and $3,860 (“B” penalty) — up from $2,500 and $3,750, respectively, for 2019.
The 2020 “A” penalty ($2,570) is for employers who fail to offer minimum essential coverage to 95% of full-time employees. The 2020 “B” penalty ($3,860) is for employers who fail to offer minimum value or affordable coverage.
Annual out-of-pocket limits
For ACA-compliant health plans, the out-of-pocket maximum for 2020 is $8,150 for self-only coverage and $16,300 for family coverage — up from $7,900 and $15,800, respectively, for 2019.
With the new limits and penalties now released, employers can start planning for 2020. For additional information, contact your employee benefits advisor.
Copyright 2019
