An Applicable Large Employer must offer its full-time employees minimum essential coverage that is affordable and provides minimum value. Health coverage is considered affordable if the employee’s contribution for the lowest-cost self-only coverage is 9.5% or less of the employee’s household income. In 2018, the 9.5% has been adjusted to 9.56%.
Recognizing that household income is difficult for an employee to determine, the IRS established three safe-harbors that employers may use to determine affordability. These safe harbors are
- W-2 income (the employee’s W-2 box-1 wages for the year);
- Rate of pay (the employee’s hourly rate multiplied by 130 hours per month);
- Federal poverty line (the annual federal poverty line for a single individual divided by 12).
New 2018 Federal Poverty Guideline
The mainland Federal Poverty Guideline for 2018 is $12,140. There are separate poverty guidelines that apply for Hawaii and Alaska. With the increase in the federal poverty level, this means that the monthly premium amount for the lowest-cost self-only coverage in 2018 cannot exceed $96.71. While an employer’s monthly premium may be above this amount, if it is, the employer cannot rely on the FPL safe harbor to show affordability.
