Changes to the ACA Affordability Standard for 2020

Vectra DigitalBlog, Health & Welfare, Multiemployer / Taft-Hartley Plan, Private Self-Funded Health Plan

Recently, the IRS issued Revenue Procedure Bulletin 2019-29, which decreases the affordability percentage under the Employer Mandate. The “affordability standard” is a component of ACA that is frequently overlooked. Employers should be reassessing their employee contribution structure annually to ensure compliance and avoid costly penalties (see below for updated penalty amounts).

In order to determine affordability, the IRS sets an “affordability percentage” annually. The affordability percentage is applied to the employee’s annual household income and the result is divided by 12 in order to determine the maximum affordable monthly contribution. Coverage is deemed to have met the ACA’s affordability standard if the employee cost for the lowest-priced self-only coverage available to them does not exceed the calculated affordable contribution. Other available plan options and rate tiers are not taken into account. Because the ACA recognizes that employers are unlikely to know their employees’ household incomes, a safe harbor was created to allow employers to use any of the following in lieu of the household income:

  • The employee’s wages as reported in Box 1 of the prior year’s W-2
  • The employee’s hourly rate of pay multiplied by 130 hours
  • The Individual Federal Poverty Level (FPL)

Currently, the affordability percentage is 9.86% for plan years beginning in 2019. Looking ahead to next year’s renewals, the affordability percentage has been decreased to 9.78% for plan years beginning in 2020. The FPL has risen ($12,490 in most states), so the maximum monthly contribution using the FPL method will be approximately $101.79 in 2020. Because affordability calculations have many moving parts regardless of the safe harbor method that is used, Foster & Foster encourages all employers to review their employee contribution structure on an annual basis to ensure compliance with the most current affordability standards.

ACA Penalties Increase for 2020
Failure to provide minimum essential coverage or to establish employee contributions that satisfy the ACA affordability standard may result in steep penalties for an employer. There are two potential penalties at stake:

  • $2,570 per employee annual penalty for an employer who does not offer “minimum essential coverage” (MEC) to at least 95% of its full-time employees and their dependents (4980H(a) penalty)
  • $3,860 per employee annual penalty if an employer does offer MEC to at least 95% of its full-time employees and their dependents, but the coverage is not “affordable” or does not provide “minimum value” (4980H(b) penalty)

If you have any questions about the ACA affordability standard or other compliance concerns, please feel free to contact us at