Blog By: Beth Ede, SPHR
Employer Shared Responsibility Provision (Play or Pay)
Understanding the Requirement – Part V: Affordable Coverage & Penalty Avoidance
It’s important to understand that the health care reform law does not impose a requirement on employers to offer health coverage. However, starting in 2014, applicable large employers (see Part I posted March 11, 2013) will be subject to Employer Shared Responsibility – the Play or Pay provisions under the Affordable Care Act.
One provision of health care reform requires an applicable large employer to offer minimum essential coverage (MEC) to full-time employees (beginning in 2014) and their dependents (beginning in 2015) or pay a penalty. It’s important to note that employers that choose to provide MEC may still face a penalty if the coverage does not provide minimum value or if the coverage is not affordable.
Current guidance (Feb. 2013) confirms that fully-insured and self-insured employer-sponsored coverage qualifies as MEC. Interestingly, the guidance does not prescribe any minimum standards that employer coverage must satisfy to be considered MEC. We’re uncertain whether the absence of prescribed rules on this issue implies that no minimum standards will ultimately be imposed. We are certain, however, that employers that do choose to provide MEC may still face a penalty if that coverage does not provide minimum value or is not affordable.
So, what does it mean for an organization’s group health plan to be affordable?
A group health plan’s coverage is considered affordable if the employee’s required contribution for the least expensive self-only coverage does not exceed 9.5% of the employee’s household income for the taxable year.
In order to address the issue of determining an employee’s household income for a taxable year, three safe harbors were created for employers to use to determine affordability for employees.
- Form W-2 Safe Harbor – the required employee contribution toward the self-only premium for the employer’s lowest cost coverage may not exceed 9.5% of the employee’s Form W-2 wages for the applicable calendar year (Box 1 of Form W-2)
- Rate of Pay Safe Harbor – the required employee monthly contribution toward the self-only premium for the employer’s lowest cost coverage is equal to or lower than 9.5% of the employee’s computed monthly wages (employee’s applicable hourly rate multiplied by 130 hours)
- Federal Poverty Level Safe Harbor – the required employee contribution toward the self-only premium under the plan does not exceed 9.5% of the federal poverty level for a single individual
Additional information on the affordability safe harbors can be found beginning on page 233 of the Federal Register – Shared Responsibility for Employers Regarding Health Coverage.
If WA can be of further assistance to you, please feel free to contact us.