Group Benefits – Setnor Byer Insurance & Risk

ACA’s affordability threshold increasing by nearly 1 percent in 2026

Anita Byer

The Internal Revenue Service recently announced that the Affordable Care Act’s affordability threshold for employer-sponsored group health plans will be 9.96 percent for plan years beginning in 2026. The affordability threshold (currently 9.02 percent) affects an employer’s potential liability for shared responsibility assessments (the pay-or-play penalty) under the ACA. This increase of nearly 1 percent provides more flexibility to employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) in establishing employee premium contributions because employees may be asked to contribute more for their health insurance coverage for plan years beginning in 2026.

Applicable Large Employers are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid a potential ACA penalty. Affordability is calculated as a percentage of household income. To be affordable in 2026, an employee’s required contribution for the lowest-cost, self-only coverage option offered by their employer (regardless of which coverage option is selected) cannot exceed 9.96 percent of that employee’s household income.

However, since employers typically do not know their employees’ household incomes, ALEs can use one of the ACA’s affordability safe harbors to determine the maximum amount an employee can be required to contribute without exceeding the affordability threshold. For example, if Sam works 40 hours per week for 52 weeks, earning $15 per hour, the most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer during the 2026 plan year is:

$258.96 per month using the W-2 Safe Harbor Method.
$194.22 per month using the Rate of Pay Safe Harbor Method (hourly rate x 130 x .0996).
$129.90 per month using the Federal Poverty Line Safe Harbor Method (FPL x .0996 divided by 12). The 2025 FPL for a single person household in the 48 contiguous states is $15,650.

Note that the basis on which the ACA’s affordability threshold is applied is plan-year, not calendar-year. In other words, the 2026 affordability threshold (9.96 percent) will apply on the first day of the new plan year in 2026, which could be January 1, July 1, or any other day in 2026. For non-calendar-year plans, the current affordability threshold (9.02 percent) will continue to apply until the new plan year begins in 2026.

The importance of planning ahead cannot be understated because the potential penalty for failing to satisfy the ACA’s affordability requirements will be higher in 2026. The “A” (sledgehammer) penalty for ALEs that fail to offer minimum essential coverage to 95% of full-time employees (and their children up to age 26) for plan years beginning in 2026 will be $3,340 per year ($278.33/month) multiplied by the total number of full-time employees minus 30. The current “A” penalty is $2,900 per year ($241.67/month).

The “B” (tack hammer) penalty for failing to offer affordable, minimum value coverage to a full-time employee who receives subsidized health coverage through an Exchange will be $5,010 per year ($417.50/month) multiplied by each such full-time employee. The current “B” penalty is $4,350 per year ($362.50/month). Although the amount of the tack hammer penalty is higher than the sledgehammer penalty, it is only multiplied by the number of full-time employees who receive subsidized Exchange coverage, whereas the sledgehammer penalty is multiplied by the total number of full-time employees minus 30.

To take advantage of the greater flexibility provided by the higher affordability threshold for plan years beginning in 2026, and to avoid the increased penalties for failures to comply, ALEs should begin planning for the upcoming plan year sooner rather than later. Please contact us to learn more about affordable group health plan options for 2026.

Employers receiving medical loss ratio (MLR) rebates must proceed cautiously

By Anita Byer

The Affordable Care Act’s Medical Loss Ratio (MLR) is designed to hold health insurance companies accountable and keep consumer costs down. According to KFF, nearly $12 billion in rebates have been issued since the MLR took effect in 2012. Approximately $1.1 billion more in rebates will be issued in 2024. Employers receiving MLR rebates, which are generally distributed by September 30^th, must proceed cautiously to avoid serious ERISA violations.

The MLR generally requires group health insurers to spend at least 80% (or 85% for large groups) of premium income on health care costs and quality improvement activities. The other 20% (or 15%) can go to overhead expenses and profits. Group health insurers that fail to satisfy the ACA’s medical loss ratio (or 80/20 rule) are required to rebate a portion of the premiums paid by policyholders.

There are specific rules governing MLR rebates. The first step is to determine whether the employer or plan participants are entitled to the rebate, which depends on whether all or part of the rebate is considered a plan asset under ERISA. Any part of the rebate that is considered a plan asset must be used by the employer, in its fiduciary capacity, solely for the benefit of the plan. Conversely, the employer is entitled to retain any part of the rebate that is not considered a plan asset.

According to the Department of Labor, in the absence of direct evidence to the contrary, like specific language in plan documents, rebates should generally be allocated between the employer and plan participants based on their relative premium contributions.

Employer Pays 100%: Employer may retain the entire rebate because it is not a plan asset
Participants Pay 100%: The entire rebate is a plan asset that must be used solely for the benefit of the plan
Each Pay Fixed Percentage: Each are entitled to portion of rebate commensurate with the portion of the premium each paid
Employer Pays Fixed Amount and Participants Pay Additional Costs: The total amount paid by participants must be allocated as a plan asset for their benefit, and any remaining amount may be retained by the employer

After determining how much of the rebate must be used to benefit participants (because it is considered a plan asset under the DOL’s guidance), the next step is distributing the rebate. Employers must use the amount of the rebate that is proportionate to the total amount of premium paid by all employees under the policy, for the benefit of such employees in a manner that is reasonable, fair, and objective. According to the DOL, employers may:

Reduce employees’ portion of premium for the subsequent policy year for all employees covered (at the time the rebate is received) under any option offered under a group health plan.
Reduce employees’ portion of premium for the subsequent policy year for employees covered (at the time the rebate is received) under the specific plan option for which the rebate was issued.
Give a cash refund to employees enrolled (at the time the rebate is received) in the group health plan option for which the rebate was issued.

The regulations provide that premiums reductions or cash refunds may, at the option of the employer: 1) be divided evenly among employees; 2) be divided based on each employee’s actual premium contributions; or 3) apportioned in a manner that reasonably reflects each employee’s premium contributions. Employers must generally do this within three months of receiving the rebate.

Dealing with MLR rebates can be risky and time consuming because they are governed by complex laws and regulations. Consultation with legal, insurance, and accounting professionals may be necessary to avoid potentially costly ERISA violations. If you have any other questions, please contact us.

ACA reporting and filing activity intensifies as deadline approaches

By Anita Byer, Setnor Byer Insurance & Risk

The beginning of the new year means that it is time for Applicable Large Employers to turn their attention to the Affordable Care Act’s annual information reporting requirements. Employers with 50 or more full-time or full-time equivalent employees during the preceding calendar year are generally considered Applicable Large Employers (ALEs) under the ACA. As such, they are required to furnish and file information statements relating to health insurance that was offered to their full-time employees during the preceding calendar year.

To comply with the ACA’s reporting requirements, ALEs are generally required to furnish a Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) to each full-time employee. Applicable Large Employers must also file every Form 1095-C with the IRS, along with Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns). The deadlines to furnish and file these forms for 2023 occur in early 2024, but this year will be a little different because it is a leap year.

Furnish Information Statements to Full-Time Employees. The original deadline for ALEs to furnish each year’s Form 1095-C to full-time employees was January 31 of the following year, but this deadline was extended annually by the IRS. In 2022, the IRS permanently extended the deadline by granting ALEs an automatic 30-day extension to furnish Forms 1095-C to full-time employees. With the automatic extension, the deadline would be March 2, but since 2024 is a leap year, the deadline to furnish the 2023 Form 1095-C to full-time employees is March 1, 2024.

Electronically File Information Returns and Transmittals with the IRS. Applicable Large Employers are required to file every Form 1095-C, along with Form 1094-C, with the IRS. (This deadline was not extended by the IRS.) The normal deadline to electronically file these forms is March 31, but because this date falls on a Sunday this year, the deadline for ALEs to electronically file their 2023 forms with the IRS is April 1, 2024.

Note that there is a separate deadline for forms submitted to the IRS on paper, which is February 28, 2024. However, to encourage the electronic filing of these forms, the IRS decreased the electronic-filing threshold from 250 forms to ten forms. As a result, ALEs filing ten or more forms in the aggregate must do so electronically.

Applicable Large Employers must take their ACA reporting obligations seriously. The penalty for failing to properly file the required ACA reporting forms can be up to $630 per form. The deadlines are approaching quickly, so there is no time to waste. Please contact us if you would like to learn more about ACA-compliant group health plans.

ACA’s affordability threshold will be lower than ever before in 2024

By Anita Byer, Setnor Byer Insurance & Risk

The Affordable Care Act’s affordability threshold will be lower in 2024 than ever before. The Internal Revenue Service recently announced that the affordability threshold for employer-sponsored group health plans that begin in 2024 will be 8.39 percent. The affordability threshold, which is currently 9.12 percent, affects an employer’s potential liability for shared responsibility assessments (the pay-or-play penalty) under the ACA. The decreasing threshold means that an affordable group health plan in 2023 could become “unaffordable” in 2024, despite identical pricing and employee contribution requirements. So, employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) must review, and possibly adjust, employee cost and contribution requirements for group health insurance coverage in 2024.

Applicable Large Employers are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid an ACA shared responsibility assessment (penalty). Affordability is calculated as a percentage of household income. To be affordable in 2024, an employee’s required contribution for the lowest-cost, self-only coverage option offered by their employer (regardless of which coverage option is selected) cannot exceed 8.39 percent of that employee’s household income.

Since employers typically do not know their employees’ household incomes, ALEs can use one of the ACA’s affordability safe harbors to determine the maximum amount an employee can be required to pay without exceeding the affordability threshold. For example, assume Sam works 40 hours per week for 52 weeks, earning $12 per hour. The most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer during the 2024 plan year is:

$174.51 per month (W-2 Safe Harbor Method);
$130.88 per month (Rate of Pay Safe Harbor Method); or
$101.94 per month (Federal Poverty Line Safe Harbor Method [48 Contiguous States 2023]).

If Sam earned $15 per hour, Sam’s required contribution for the lowest-cost, self-only coverage option cannot exceed:

$218.14 per month (W-2 Safe Harbor Method);
$163.61 per month (Rate of Pay Safe Harbor Method); or
$101.94 per month (Federal Poverty Line Safe Harbor Method [48 Contiguous States 2023]).

Note that the basis on which the ACA’s affordability threshold is applied is plan-year, not calendar-year. In other words, next year’s affordability threshold (8.39 percent) will apply on the first day of the new plan year in 2024, which could be January 1, July 1, or any other day in 2024. For non-calendar-year plans, the current affordability threshold (9.12 percent) will continue to apply until the new plan year begins in 2024.

The consequences for failing to satisfy the ACA’s affordability requirement can be severe. Applicable Large Employers need to review, and possibly adjust, next year’s group health plan offerings, pricing options, cost-sharing structure, and in some cases, compensation levels, to ensure compliance with the ACA’s affordability requirement.

Please contact us if you would like to learn more about affordable group health plan options for 2024.

ACA’s affordability threshold will be lower in 2023

By Anita Byer, Setnor Byer Insurance & Risk

The IRS announced that the Affordable Care Act’s affordability threshold for employer-sponsored group health plans will be 9.12 percent in 2023. Employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) must recognize that next year’s affordability threshold will be lower than this year’s, which is 9.61 percent. This means that a group health plan that was affordable in 2022 may be unaffordable in 2023, despite being exactly the same. Many ALEs will need to adjust their group health plan contribution requirements to avoid potential ACA penalties in 2023.

ALEs are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid the ACA’s employer shared responsibility (pay-or-play) penalty. Affordability is calculated as a percentage of household income. To be affordable in 2023, an employee’s required contribution for the lowest-cost, self-only coverage option offered by their employer (regardless of which coverage option is actually selected) cannot exceed 9.12 percent of that employee’s household income.

Since employers typically do not know their employees’ household incomes, ALEs can use one of the ACA’s affordability safe harbors to determine the most employees can be required to pay without exceeding the affordability threshold. For example, let’s assume Jordan works 40 hours per week for 52 weeks, earning $10 per hour. The most Jordan can be required to pay for the lowest-cost, self-only coverage option offered by Jordan’s employer in 2023 is:

$158.08 per month (W-2 Safe Harbor Method);
$118.56 per month (Rate of Pay Safe Harbor Method); or
$103.28 per month (Federal Poverty Line Safe Harbor Method—2022).

If Jordan earned $15 per hour, Jordan’s required contribution for the lowest-cost, self-only coverage option cannot exceed:

$237.12 per month (W-2 Safe Harbor Method; “Box 1”);
$177.84 per month (Rate of Pay Safe Harbor Method); or
$103.28 per month (Federal Poverty Line Safe Harbor Method—2022).

The affordability threshold for group health plans beginning in 2023 is only a fraction of a percent lower than 2022’s threshold, but the consequences for ALE’s that fail to adapt accordingly can be substantial. To ensure compliance with the ACA’s affordability requirement in 2023, ALEs need to evaluate and possibly adjust their health plan pricing options, cost-sharing structure, and in some cases, compensation levels.

Please contact us if you would like to learn more about affordable group health plan options for 2023.

Affordable Care Act: Will Your Group Health Plan be “Affordable” in 2022?

By Anita Byer, Setnor Byer Insurance & Risk

The IRS announced that the Affordable Care Act’s affordability threshold for employer-sponsored group health plans will be 9.61 percent in 2022. Employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) must recognize that next year’s affordability threshold will be lower than the 9.83 percent used in 2021. This means that a group health plan that was affordable in 2021 may be considered unaffordable in 2022, despite being exactly the same. As a result, many ALEs will need to make adjustments to avoid potential ACA penalties in 2022.

ALEs are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid the ACA’s employer shared responsibility (pay-or-play) penalty. Affordability is calculated as a percentage of household income. Since employers typically do not know their employees’ household income, ALEs can use one of the ACA’s affordability safe harbors to determine the most employees can be required to pay without exceeding the affordability threshold.

For example, let’s assume Sam worked 40 hours per week for 52 weeks in 2022. If Sam earned $10 per hour, the most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer is:

$166.57 per month (W-2 Safe Harbor Method);
$124.93 per month (Rate of Pay Safe Harbor Method); or
$103.15 per month (Federal Poverty Line Safe Harbor Method—2021).

If Sam earned $15 per hour, Sam’s required contribution for the lowest-cost, self-only coverage option cannot exceed:

$249.86 per month (W-2 Safe Harbor Method);
$187.39 per month (Rate of Pay Safe Harbor Method); or
$103.15 per month (Federal Poverty Line Safe Harbor Method—2021).

The affordability threshold for group health plans beginning in 2022 is only a fraction of a percent lower than this year’s threshold, but the consequences for ALE’s that fail to adapt accordingly can be substantial. To ensure compliance with the ACA’s affordability requirement in 2022, ALEs need to evaluate and possibly adjust their health plan pricing options, cost-sharing structure, and in some cases, compensation levels.

Please contact us if you would like to learn more about ACA-compliant group health plan options for 2022.

Affordable Care Act Update: IRS Extends ACA Reporting Deadline and Good-Faith Relief from Penalties

Setnor Byer Insurance & Risk

This seemingly endless year is almost over…finally. That means it’s time for Applicable Large Employers (ALEs) to start focusing on the Affordable Care Act’s annual information-reporting requirements. Fortunately, the Internal Revenue Service extended the deadline for ALEs to furnish 2020 information statements to employees. However, the deadline for ALEs to file information returns with the IRS has not been extended.

Applicable Large Employers, which are generally employers with 50 or more full-time or full-time equivalent employees in the previous year, must do the following to comply with the ACA’s annual reporting requirements.

Furnish Information Statements to Employees. The IRS extended the deadline to furnish 2020 Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) to employees from January 31, 2021 to March 2, 2021. This is the sixth consecutive year the IRS has extended this deadline.

File Information Returns and Transmittals with the IRS. Each 2020 Form 1095-C must also be filed with the IRS on or before February 28, 2021 (March 31, 2021, if filed electronically). The IRS did NOT extend this filing deadline. However, employers may request an automatic 30-day extension by filing Form 8809 before the ACA filing deadline.

The IRS also extended the good-faith relief from penalties that may be levied against ALEs for failing to comply with the ACA’s filing and furnishing requirements, which can be up to $280 per form. To be eligible for this relief, employers must make a good-faith effort to comply. In determining good faith, the IRS will consider whether reasonable efforts were made to prepare the required reports.

It’s important to note that this relief applies to forms with missing or inaccurate information. ALEs that fail to timely file or furnish the required reports are not eligible. According to the IRS, this is the last year they intend to provide good-faith relief from the ACA’s penalties.

Please contact us if you would like to learn more about ACA-compliant group health plans.

Affordable Care Act: Will Your Group Health Plan be Affordable in 2021?

The Affordable Care Act’s affordability threshold for employer-sponsored group health plans will increase to 9.83 percent in 2021. The affordability threshold is currently 9.78 percent. The impending increase primarily affects employers with 50 or more full-time or full-time equivalent employees. The ACA generally requires these Applicable Large Employers (ALEs) to offer full-time employees “affordable” minimum essential health care coverage; otherwise, they may have to pay the ACA’s employer shared responsibility (pay-or-play) penalty.

Affordability is calculated as a percentage of household income. In 2021, the amount an employee must pay (required contribution) for the lowest-cost, self-only coverage option offered by their ALE cannot be more than 9.83 percent of the employee’s household income. If it is, the employee’s offer of health coverage is not considered affordable and the ALE may be assessed a penalty under the ACA.

ALEs can use one of the ACA’s affordability safe harbors to determine the most employees can be required to pay without exceeding the affordability threshold. For example, if Sam earned $12 per hour in 2021 and worked 40 hours per week for 52 weeks, Sam’s monthly required contribution for coverage under the ALE’s 2021 calendar year group health plan cannot exceed:

— $204.46 per month, if using the W-2 Safe Harbor Method;
— $153.35 per month, if using the Rate of Pay Safe Harbor Method; or
— $104.53 per month, if using the Federal Poverty Line Safe Harbor Method.

Even though the affordability threshold for group health plans beginning in 2021 is only .05 percent higher than the year before, the difference can be consequential. To ensure compliance with the ACA’s affordability requirement in 2021, ALEs need to evaluate and possibly adjust their health plan pricing options, cost-sharing structure, and in some cases, compensation levels.

Please contact us if you would like to learn more about ACA-compliant group health plan options for 2021.

Affordable Care Act: IRS Extends 2019 Reporting and Filing Deadline

It’s that time of year again. Large employers must turn their attention to the Affordable Care Act’s annual information-reporting requirements. The good news is that the Internal Revenue Service extended the deadline for large employers to furnish 2019 information statements to employees. However, the deadline to file information returns with the IRS has NOT been extended.

Applicable Large Employers, which are generally those with 50 or more full-time or full-time equivalent employees in the previous year, must do the following to comply with the ACA’s 2019 annual reporting requirements.

Furnish Information Statements to Full-Time Employees. The IRS extended the deadline to provide Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) to full-time employees from January 31, 2020 to March 2, 2020. This is the fifth consecutive year that the IRS has extended this deadline.

File Information Returns and Transmittals with the IRS. Every Form 1095-C along with Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) must be filed with the IRS on or before February 28, 2020 (March 31, 2020, if filed electronically). The IRS did NOT extend this filing deadline. However, employers may request an automatic 30-day extension by filing Form 8809 before the ACA filing deadline.

For 2019, the IRS also extended the good-faith relief from penalties that may be levied against employers for failing to properly file or furnish these forms, which can be $270 per form. The maximum penalty can be $3,339,000. To be eligible for this relief, employers must make a good-faith effort to comply.

According to the IRS, this relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement. Employers that fail to file an information return with the IRS or furnish a statement to an employee by the extended deadline are not eligible for the extended the good-faith relief from ACA penalties.

Please contact us if you would like to learn more about ACA-compliant group health plans.

Affordable Care Act Update: IRS Announces Affordability Threshold for 2020

The Internal Revenue Service announced that the Affordable Care Act’s affordability threshold will be 9.78 percent in 2020. This is important because employers with 50 or more full-time or full-time equivalent employees in the preceding calendar year (Applicable Large Employers or ALEs) must offer their full-time employees minimum essential health care coverage that is affordable. Otherwise, they may have to pay the ACA’s employer shared responsibility (employer mandate) penalty.

Affordability under the ACA is calculated as a percentage of household income. So, to satisfy the ACA’s affordability requirement in 2020, the lowest-cost, self-only coverage option offered by Applicable Large Employers may not exceed 9.78 percent of an employee’s household income. The affordability threshold is adjusted annually. In 2019, it was 9.86 percent.

ALEs can use one of the ACA’s affordability safe harbors to determine the most employees can be required to pay without exceeding the affordability threshold. For example, if Pat earned $10 per hour in 2020 and worked 40 hours per week for 52 weeks, Pat’s monthly payment cannot exceed:

W-2 Safe Harbor: $169.52 ($170.91 in 2019);
Rate of Pay Safe Harbor: $127.14 ($128.18 in 2019); or
Federal Poverty Line Safe Harbor: $101.79 ($99.75 in 2019).

Despite being small, these changes can still be significant. To ensure compliance with the ACA’s affordability requirement in 2020, ALEs need to evaluate and possibly adjust their health plan pricing options, cost-sharing structure, and in some cases, compensation levels.

Please contact us if you would like to learn more about ACA-compliant group health plans.