In order to determine coverage affordability under the Affordable Care Act (ACA), 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 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’ annual household incomes, a safe harbor was created which allows 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 (one calendar month)
• The Individual Federal Poverty Level (FPL)

For plan years beginning on or after January 1, 2019, the affordability percentage is 9.86% (see IRS Revenue Bulletin 2018-34). Non-calendar year plans should continue to use the 2018 affordability percentage of 9.56% until the start of their 2019-2020 plan year. The FPL has also risen ($12,140 in most states), so the maximum monthly contribution using the FPL method will be approximately $99.75 in 2019, up from $96.08 in 2018.  Because affordability calculations have many moving parts regardless of the safe harbor method that is used, Foster & Foster encourages all employers subject to the ACA’s employer mandate to reevaluate their employee contribution structure annually to ensure compliance with the most current affordability standards.