Navigating the complexities of the Affordable Care Act (ACA) can be particularly challenging when it comes to employer-sponsored health coverage. A key aspect of ACA compliance for employers is ensuring that the health coverage they offer to their employees is considered “affordable.” This article breaks down how affordability is determined, especially concerning the employer’s responsibilities, even if the term “Affordable Care Act Part Time” isn’t explicitly defined within the legal framework.
Under the ACA, employer-provided coverage is deemed affordable if the employee’s required contribution for the least expensive, minimum-value plan offered by the employer does not exceed 9.5 percent of the employee’s household income. This percentage is adjusted annually. The “employee required contribution” encompasses all costs borne by the employee, including salary reductions and pre-tax contributions, while also considering the impact of employer-sponsored arrangements like Health Reimbursement Arrangements (HRAs), wellness incentives, and opt-out payments.
However, employers, especially large applicable employers (ALEs), often lack visibility into their employees’ total household incomes. To address this, the IRS provides three affordability safe harbors that employers can utilize. These safe harbors allow employers to determine affordability based on information they readily possess, such as employee wages or pay rates. If an employer’s health plan is considered affordable under any of these safe harbors, it is automatically deemed affordable for ACA’s employer shared responsibility provisions, regardless of whether it meets the 9.5% household income threshold.
These three affordability safe harbors are:
-
Form W-2 Wages Safe Harbor: This safe harbor typically uses the amount reported in Box 1 (Wages, tips, other compensation) of the employee’s Form W-2. If the employee’s premium contribution for the lowest-cost, minimum-value coverage is 9.5% or less of their Form W-2 wages, the coverage is considered affordable.
-
Rate of Pay Safe Harbor: This safe harbor is based on the employee’s rate of pay at the start of the coverage period. For hourly employees, adjustments are permitted if the pay rate decreases, but not if it increases. Affordability is met if the employee’s premium contribution is 9.5% or less of their monthly rate of pay.
-
Federal Poverty Line Safe Harbor: This safe harbor benchmarks affordability against the federal poverty line for a single individual. Coverage is deemed affordable if the employee’s monthly premium contribution does not exceed 9.5% of the federal poverty line (divided by 12).
Employers have the flexibility to use one or more of these safe harbors. They can choose to apply a single safe harbor across their entire workforce or use different safe harbors for different categories of employees, provided these categories are reasonable and applied consistently within each category. It’s crucial to note that to utilize any safe harbor, an ALE must offer minimum value coverage to at least 95% of its full-time employees and their dependents. When an employer offers multiple health plan options, the affordability test is always applied to the lowest-cost self-only coverage option that provides minimum value available to the employee.
For a deeper dive into the intricacies of affordability, including the impact of HRAs, wellness programs, and other employer arrangements, further guidance can be found in IRS Notice 2015-87 and the proposed regulation on the premium tax credit. These resources provide comprehensive details and examples to help employers navigate ACA affordability rules effectively and ensure compliance.
In conclusion, while the term “affordable care act part time” isn’t a specific term of art, understanding ACA affordability is vital for all employers, regardless of their workforce composition. By utilizing the provided safe harbors and understanding the calculation of employee contributions, employers can confidently offer affordable health coverage and meet their obligations under the Affordable Care Act.
