As you know, under the ACA employees who have access to ‘affordable’ health insurance from their employer are not eligible for subsidies, and large employers (50+ FTEs) must offer affordable coverage. This year (2016), affordable means that the employee’s portion of individual health insurance premiums is less than 9.66% of their household income; in 2017 that number rises to 9.69% of income. What you might not know is that opt-out payments can affect the affordability calculation. Conditional opt-out payments – you only provide opt-out payments to employees who are not enrolled in your plan but are enrolled in another plan that satisfies the minimum coverage requirements of the ACA – do not affect affordability. Unconditional opt-out payments – you provide opt-out payments to any eligible employee who decides not to enroll in your plan – DO affect affordability.
Here’s an Example
Employees who enroll in your health insurance must pay $50/month in premium for individual coverage. However, you offer an unconditional opt-out of $150/month to eligible employees who decide not to enroll in your coverage.
As a result, your employees who enroll in your health insurance are deemed to pay $200/month for the purposes of the affordability calculation. In this case a full-time employee’s annual pay will need to be at least $24,845 in order for coverage to qualify as affordable. If you don’t offer the opt-out pay (or it is conditional), your full-time employee only needs to make $6211 a year for coverage to be affordable.
As always, please let me know if you have any questions regarding the Affordable Care Act or employee benefits.
Account Manager, Employee Benefits
Phone: 800-287-3379 x 312
Broker World, July 2016. Janet Letourneau’s ‘Affordability Determination, Government Entities, And Benefits Administered By The VA And HSAs