Posted on May 22, 2013

How to Determine if Your Health Benefits Are Affordable

Health care reform update: the employer shared responsibility provision has been delayed. This means you have more time to determine how to comply.

The Affordable Care Act (ACA) has many implications for employers that will require a great deal of analysis and decision-making. One of the major provisions employers should be planning for is employer shared responsibility, or the mandate that large employers must provide affordable health coverage of a minimum value to their full-time employees. This brings up many questions for employers:

# Do I qualify as a “large” employer?
# What counts as “affordable” coverage?
# What does “minimum value” mean?
# Who counts as a “full-time” employee?

Let's take a closer look at the second question: What counts as “affordable” coverage?

Affordable coverage under the ACA means, for the lowest-value health benefits plan you offer to an employee, their contribution cannot exceed 9.5% of their household income. Since employers generally do not know the exact amount of each employee’s household income, current IRS guidance allows you to use employees’ annualized wages for this calculation.

Consider this example:

* Your lowest-value health benefits plan costs $70 per month for single-only coverage.
* You compare this against 9.5% of each full-time employee’s annualized wages (divided by 12 months) to see what is considered affordable.
* You notice that, for three of your employees, 9.5% of their monthly wage only equals $65.
* Since this is less than the $70 per month you are charging for coverage, your plan would be considered unaffordable.
* You would need to lower your employee contribution to $65 to meet the requirement, or face the shared responsibility penalty of $2,000-$3,000 per employee.

Fortunately, Paycor has created a standard ACA Affordability Report in Custom Web Reporting that performs these calculations for you, helping you easily see whether your plan meets the affordability requirement or not. These reports provide the necessary information to help you comply with the Affordable Care Act.

Learn more about how Paycor can help you navigate health care reform, and remember to speak with your HR or benefits professional to make sure you are prepared for compliance.