Clarification 9.5 Rule

[AllenChicago]

I view the "Safe Harbors" as being only applicable to the employer's calculation, Jeff.

When Safe Harbors are discussed in IRS Literature, like here: Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act , that term is applicable only to employer...not employee.

Your client should proceed/calculate based solely on the Individual Affordability provisions, IMO. Probably the most concise and accurate place to look would be the IRS Instructions for Form 8965: http://www.irs.gov/pub/irs-pdf/i8965.pdf

But it gets fairly complicated because one threshold is used to calculate affordability (9.56%) and another is used to exempt from having to purchase health insurance at all (8%).

What are you trying to accomplish with this family Jeff? Obtaining a Marketplace plan, or exempting them from having to purchase health insurance??

 

[Ann H]

Agreed. To make it clear, there is a 9.56% rule for employers and a 9.56% rule for employees. For the employee who wants a subsidy, it's 9.56% of household income. For the employer who is trying to avoid a penalty for unaffordable insurance, it's 9.56% of the employee's w2 wage, per the safe harbor.

For both employer and employee, it's based on the self-only premium (the employee-only premium), no matter how much it costs to add dependents.

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By the way, 9.5% was last year. In 2015 it's 9.56%.

And the 8% figure for calculating exemptions is now adjusted to 8.05%

 

[jefflange]

I view the "Safe Harbors" as being only applicable to the employer's calculation, Jeff.

When Safe Harbors are discussed in IRS Literature, like here: Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act , that term is applicable only to employer...not employee.

Your client should proceed/calculate based solely on the Individual Affordability provisions, IMO. Probably the most concise and accurate place to look would be the IRS Instructions for Form 8965: http://www.irs.gov/pub/irs-pdf/i8965.pdf

But it gets fairly complicated because one threshold is used to calculate affordability (9.56%) and another is used to exempt from having to purchase health insurance at all (8%).

What are you trying to accomplish with this family Jeff? Obtaining a Marketplace plan, or exempting them from having to purchase health insurance??

The employee in question was referred to me and she indicated that her Group plan with her employer was not affordable and terrible coverage. She sent me the New Employer sponsored plan information effective September-1st with the pricing attached and asked if she could opt out because it is not affordable. She brought up the 9.5% rule which I thought I pretty much understood.

I really hate giving bad advice and this topic. I think she thinks she can just not take the group plan and move into the federal exchange possibly with subsidy because her share of the employer premiums seem quite high compared to her annual salary.

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Agreed. To make it clear, there is a 9.56% rule for employers and a 9.56% rule for employees. For the employee who wants a subsidy, it's 9.56% of household income. For the employer who is trying to avoid a penalty for unaffordable insurance, it's 9.56% of the employee's w2 wage, per the safe harbor.

For both employer and employee, it's based on the self-only premium (the employee-only premium), no matter how much it costs to add dependents.

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By the way, 9.5% was last year. In 2015 it's 9.56%.

And the 8% figure for calculating exemptions is now adjusted to 8.05%

Thanks Ann & Allen. You pretty much answered my question. I would speculate that the household combined income will show that her Employee Only cost to her plan would deem it affordable. I would also have to think the employer took this into consideration when moving their benefit plan for this coming year to take into account the Safe Harbor issues.

 

[unic.consulting]

What would the off-exchange price for a plan be for her family? She can opt out of the employer's plan to get an off-exchange plan, she just won't qualify for any subsidies. If there is a plan that she can get that she likes better, why not?

 

[jefflange]

What would the off-exchange price for a plan be for her family? She can opt out of the employer's plan to get an off-exchange plan, she just won't qualify for any subsidies. If there is a plan that she can get that she likes better, why not?

It would be approx. $250-$350 more monthly than her Groups Health Plan if she did not receive any subsidy help and we put her on an Off-Exchange similar policy......

I don't know if there would be an attractive alternative for her in this situation.

 

[ERISAgaga]

Wow, I know this is confusing.
But it is none of the employer's business what a spouse or dependent makes. Therefore the rule was amended to employee only being affordable. In the example above the plan is not affordable but it probably meets minimum value.
The employer gets away with it as long as the employee does not get a subsidized plan thru the Marketplace. If the employee and spouse go to the marketplace and get a plan that is not subsidized because of income the employer is off the hook again.
If I were the employer I would make it affordable for that employee.

 

[jefflange]

Wow, I know this is confusing.
But it is none of the employer's business what a spouse or dependent makes. Therefore the rule was amended to employee only being affordable. In the example above the plan is not affordable but it probably meets minimum value.
The employer gets away with it as long as the employee does not get a subsidized plan thru the Marketplace. If the employee and spouse go to the marketplace and get a plan that is not subsidized because of income the employer is off the hook again.
If I were the employer I would make it affordable for that employee.

Yes , it is a bit confusing. The rates I listed are for 1 of the 2 plans offered by the employer. They are offered a 2K deductible plan and a 6K deductible plan.
The plan info from my 1st post is for the 2K deductible plan.
Both seem compliant and even the 6K deductible plan which I did not list # for would still be considered Not affordable based on her 25,000 W-2 Income.
And Yes I agree the only way I see the employer getting stuck on this would be if the Employee goes and purchase through the Public or Private Exchanges.
The Problem there is that in this situation which may be similar in most areas is that the rates for like plans is between $250-$300 more monthly than what is offered by the employer. So I think many will stay on their groups plan. We will have to see how this plays out I guess.

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I think in general for many of us including our clients who have Group insurance many are finding out there is nothing Affordable about the Affordable Care Act.

That is unless your heavily subsidized.

 

[Ann H]

Yes , it is a bit confusing. The rates I listed are for 1 of the 2 plans offered by the employer. They are offered a 2K deductible plan and a 6K deductible plan.
The plan info from my 1st post is for the 2K deductible plan.
Both seem compliant and even the 6K deductible plan which I did not list # for would still be considered Not affordable based on her 25,000 W-2 Income.
And Yes I agree the only way I see the employer getting stuck on this would be if the Employee goes and purchase through the Public or Private Exchanges.
The Problem there is that in this situation which may be similar in most areas is that the rates for like plans is between $250-$300 more monthly than what is offered by the employer. So I think many will stay on their groups plan. We will have to see how this plays out I guess.

It gets worse. If the employer offers 2 plans, and both of them meet the 60% actuarial value test, then the 9.56% affordability test is based on the LOWEST COST option.

 

[LGilmore]

To even muck it up more... OP is the employee's portion of the premium taken pre-tax?

She may not qualify for a subsidy from the exchange and pay full price without a tax break by not using her employer.

When I run into these situations that's the first thing I ask "are your premium contributions taken pre-tax?" if yes, the best place usually for them to stay is with work if it's about price.

Don't have any details infront of me but I know it's hard to beat a qualified premium plan offered through an employer.

 

[jefflange]

It gets worse. If the employer offers 2 plans, and both of them meet the 60% actuarial value test, then the 9.56% affordability test is based on the LOWEST COST option.

Ya Ann, that is what happened here. Employer offered a 2K deductible and a 6K deductible. Both plans look to be ACA compliant and we have to use the 6K deductible plan costs. Still unaffordable based on her 25K income or W-2 but probably not unaffordable based on HOUSEHOLD Income.