This E-Alert is of interest to Applicable Large Employers (ALEs) – generally those with 50 or more full-time employees (including full-time equivalent employees). Under the ACA’s employer shared responsibility (“Pay or Play”) provisions, large employers may be subject to a penalty if they do not offer affordable coverage that provides minimum value to their full-time employees and their dependent child(ren).

For the third time in the ACA’s history, the required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” has been reduced.

For plan years beginning in 2022, the Internal Revenue Service has announced that coverage will generally be considered affordable if the employee’s required contribution for the lowest cost self-only health plan offered is 9.61% or less of their household income for the taxable year. This is a decrease from the 9.83% affordability threshold applicable for plan years beginning in 2021.

Because employers are unlikely to know an employee’s actual household income, they may use a number of IRS provided safe harbors to determine affordability of their plan offerings. Adjustments to the affordability percentage are important as failure to get the safe harbor calculation right can lead to costly penalties.

Important Note: Because the 2022 affordability rate is lower than the 2021 affordability rate, applicable large employers may need to reduce their employees’ share of premium contributions to maintain affordable coverage. Because the percentage has gone down, employers could end up with an unaffordable plan this year when it was affordable last year even if everything else remained exactly the same.

Disclaimer: The information contained in this message is for general informational purposes only and does not constitute legal advice.

Employee Health and Benefits

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