The IRS introduced that the 2023 well being plan affordability threshold—used to find out if an employer’s lowest-premium well being plan meets the Reasonably priced Care Act’s (ACA’s) affordability requirement—shall be 9.12 p.c of an worker’s “family earnings,” down from the 2022 restrict of 9.61 p.c.
The brand new affordability threshold charge was included amongst well being plan tax provisions in
IRS Revenue Procedure 2022-34, issued on July 25. The affordability threshold, which impacts employers’ potential legal responsibility for ACA shared-responsibility penalties, is adjusted yearly based mostly on well being plan premium progress relative to earnings progress, utilizing nationwide well being expenditure information from the Facilities for Medicare and Medicaid Providers.
The adjusted proportion applies on a plan-year—not calendar-year—foundation, and noncalendar-year plans will proceed to make use of 9.61 p.c to find out affordability in 2023 till their new plan yr begins.
Beneath the continuously used federal poverty line (FPL) secure harbor for figuring out “family earnings” in relation to affordability:
The highest premium for an employer’s lower-cost, self-only 2023 plan shall be $103.28 per 30 days, based mostly on a look-back 2022 FPL of $13,590 in annual earnings. (Laws permit employers to make use of the revealed FPL charge in impact six months previous to the start of the plan yr.)
That is nearly the identical because the 2022 plan yr high premium of $103.15 per 30 days, based mostly on a look-back 2021 FPL of $12,880.
For group well being plan choices provided to staff in the course of the upcoming fall open enrollment interval, “employers ought to evaluation the required worker contribution for 2023 protection in the event that they plan to fulfill the ACA’s affordability restrict underneath the relevant secure harbor,”
explained an alert by Dorian Z. Smith, a accomplice at HR consultancy Mercer in New York Metropolis, and Cheryl Hughes, a principal within the agency’s Washington, D.C. workplace.
Brian Gilmore, lead advantages counsel at Newfront, an insurance coverage and monetary providers agency in San Francisco,
wrote in an alert that “employers with a calendar plan yr providing a medical plan choice in 2023 that prices staff not more than $103.28 per 30 days for employee-only protection will mechanically meet the ACA affordability commonplace underneath the federal poverty line affordability secure harbor that deems protection inexpensive for all full-time staff.”
He added, “The place attainable inside budgetary constraints, employers ought to put together to supply no less than one medical plan choice to full-time staff in all areas with an employee-share of the premium not exceeding $103.28/month for employee-only protection to simplify affordability compliance underneath the federal poverty line secure harbor.”
Family Earnings Protected Harbors
“The IRS acknowledged that an employer would don’t have any method to decide a person’s family earnings, so in consequence the IRS created three affordability secure harbors that an employer can use to fulfill the employer’s affordability threshold,” based on
an alert by Accord Programs LLC, an ACA compliance software program agency. “An employer wishing to make use of one of many affordability secure harbors will use the 2023 affordability threshold of 9.12 p.c when figuring out if the secure harbor has been happy.”
three safe harbors for family earnings are:
An employee’s W-2 wages, as reported in Field 1, usually as of the primary day of the plan yr. The Type W-2 affordability secure harbor “supplies little predictability as a result of staff’ Field 1 wages are unknown till January of the next yr,” Gilmore identified.
An worker’s charge of pay, which applies the affordability threshold proportion based mostly on two separate assessments—one for hourly full-time staff and one other for salaried full-time staff.
The federal poverty line, as revealed yearly by the Division of Well being and Human Providers.
The 2022 FPL is $13,590 for people (though barely totally different for workers in Hawaii and Alaska). For 2023 calendar-year plans, the $13,590 FPL is split by 12 and multiplied by 9.12 p.c, which equals an allowable month-to-month premium of $103.28, rounded to the closest penny.
Selecting a Protected Harbor
Relevant giant employers (ALEs)—these with 50 or extra full-time or equal staff—are topic to the ACA’s share duty protection mandate. These employers ought to at all times use the FPL secure harbor the place obtainable as a result of it ends in protection mechanically being deemed inexpensive with no per-employee calculations mandatory, Gilmore suggested.
Employers that don’t supply a medical plan choice assembly the FPL secure harbor, he famous, ought to as a substitute use the rate-of-pay secure harbor, which “requires an easy evaluation” of the bottom hourly charge of pay for hourly full-time staff and the bottom month-to-month wage for salaried full-time staff.
Though extra difficult to calculate, the rate-of-pay secure harbor usually permits for larger premiums, Gilmore famous, as within the following examples he gave for a 2023 calendar-year plan:
If the lowest-paid hourly worker makes $15 an hour, the utmost premium could be $177.84 per 30 days.
If the lowest-paid full-time salaried worker makes $36,000, the utmost premium could be $273.60 per 30 days.
ALEs that don’t supply a plan that’s inexpensive and supplies
minimum essential coverage to no less than 95 p.c of their full-time employees and dependents could also be topic to
employer penalties underneath Inside Income Code Part 4980H(a). This yr, Part 4980H(a) penalties are $229.17 a month or $2,750 annualized, per worker.
Plans that are not “inexpensive” and do not present
minimum value could also be topic to Part 4980H(b) penalties, which this yr are $343.33 a month or $4,120 annualized, per worker.
In January, the IRS will make inflation changes to those penalties for 2023 plans.
Some staff have the choice of taking part in office wellness packages that decrease their well being plan premiums, generally conditioned on assembly specified well being objectives.
“In figuring out whether or not the self-only contribution quantity satisfies affordability, aside from wellness packages designed to forestall or scale back tobacco use, affordability shall be decided assuming that every worker fails to fulfill the necessities of the wellness program,” famous HR consultancy Buck
“For wellness packages which might be designed to cut back or forestall tobacco use, affordability will be decided assuming that every worker satisfies the necessities of the wellness program,” the consultants defined. “If the plan has an opt-out credit score for waiving protection, usually that credit score must be added to the self-only contribution quantity in figuring out affordability.”