Defining Affordable . . .

[somarco]

If the employer pays the employee $50k the employer can GUESS at family income and GUESS at AGI but what happens if they guess wrong?

The rules say affordable is defined as 9.5% of AGI. So if the employer contribution is $200 per month and 9.5% of the employee/family AGI is $3750 but that employee is expected to pay $700 per month as their share of the premium that $700 represents 18% of AGI.

The plan is no longer affordable and the employer must either pony up more money, pay a penalty or drop the plan.

InsureBlog: Defining Affordable

 

[djs]

You do not need to spend 9.5%, but that is the most you should spend (kinda sorta).

A 35 year old making $50K should have a premium of $3962, unsubsidized and is not eligible for subsidy, according to Health Reform Subsidy Calculator - Kaiser Health Reform

He wouldn't be eligible anyway, since he has coverage through work, but I think there are numbers that will get subsidies even if work pays part.

So if work pays $2400 of the $3962, he continues to pay his $1562 and he is covered. He does not come close to 9.5%, until he goes to the doctor and has to actually pay for some care.

If he is married and both work, has kids, etc, it gets much harder to tell how it would come together.

Dan

 

[insurehound]

Seems easy to understand. This switch to the Exchange system will be a breeze

 

[somarco]

He wouldn't be eligible anyway, since he has coverage through work

Ahh, but is the employer plan really affordable?

 

[Yagents]

Bob, you state it in your blog, but here is the recent IRS Q&A that provides a safe harbor to the employer. I think they realized that an employer will have no idea of the actual AGI of the EE, and/or family's AGI.

Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act

11. How does an employer know whether the coverage it offers is affordable?
If an employee's share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee's annual household income, the coverage is not considered affordable for that employee. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement (see question 12, below.)
Because employers generally will not know their employees' household incomes, employers can take advantage of one of the affordability safe harbors set forth in the proposed regulations. Under the safe harbors, an employer can avoid a payment if the cost of the coverage to the employee would not exceed 9.5% of the wages the employer pays the employee that year, as reported in Box 1 of Form W-2, or if the coverage satisfies either of two other design-based affordability safe harbors.

 

[somarco]

if the cost of the coverage to the employee would not exceed 9.5% of the wages the employer pays the employee that year,

OK, but since employees are not all paid the same, if the employer subsidizes the cost to an employee making $40k to the extent that employees share does not exceed 9.5% of AGI but what about the $50k employee? If the employer pays more of the premium for the higher paid employee he is in violation of non-discriminatory rules.

This is still a Catch 22 for employers.

If they pay more of the premium for one employee the entire plan can be disqualified by the IRS.

 

[taterpeeler]

ok, dumb question... I think..... lets say someone works and covers husband and 2 kids and this persons makes in excess of the 400% poverty line, the employer does not know what the family income is... is it 9.5% of the employee only premium or dose that include the dependents coverage... considering all will be on the group plan I am speaking of....

 

[somarco]

Not a dumb question at all. We (especially me) are noodling this out as we go.

As I understand it, 9.5% is the ceiling for the employee portion regardless of whether they are employee only, EE + spouse, EE + child(ren) or full family.

 

[Ann H]

Yes, the 9.5% is the ceiling for the employee portion. Dependent coverage was not considered. This is for group insurance.

That has caused a stir, because an employee's share might be "affordable", but if the employee has to pay 100% of the cost of adding dependents, it costs too much yet still meets the Obamination definition of "affordable".

Unlike Group plans, For the Exchange, 9.5% of family AGI is the ceiling for the whole family's premium.

This will cause a math frenzy.

 

[Yagents]

Bob, discriminatory testing is nothing that I've heard about. But, isn't it in place to make sure the highly compensated employees don't get a bigger benefit? The way this puppy is set up, it favors the lower income, and hurts the higher income. Remember, the affordability is based upon what the EE pays, not the employer. the higher the income, the more the EE pays, and the LESS the ER pays. Vice versa for lower income.

Peeler, don't worry, with your low production, your family will qualify for medicaid