Will your organization’s health insurance still be “affordable” next year?

The IRS recently announced 2021 indexing adjustments for some critical percentages under the Affordable Care Act (ACA). This makes now a good time to review whether your organization is an applicable large employer (ALE) under the ACA and, if so, whether the health care coverage you offer employees will still be considered “affordable” as defined by the law.

On being an ALE

An employer’s size, for ACA purposes, is determined in any given year by its number of employees in the previous year. Generally, if your organization has 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is an individual employed on average at least 30 hours of service per week.

Under the ACA, if an ALE doesn’t offer minimum essential coverage that’s affordable and provides minimum value to its full-time employees and their dependents, the employer may be subject to a penalty if at least one of its full-time employees receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).

Indexed amounts

The required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility under the ACA was recently indexed. It will increase from the 9.5% baseline to 9.83% for 2021 — and this is an increase from 9.78% for 2020.

Similarly, the percentages used to determine the amount of household income that individuals eligible for premium tax credits must contribute toward the cost of Health Insurance Marketplace coverage will increase from both the baseline and the 2020 percentages. The percentages vary across household income bands; for 2021, the adjusted percentages range from 2.07% to 9.83%.

Unlike many indexed amounts, these adjustments require consideration of two independent variables: the growth rate of health insurance premiums relative to growth in the consumer price index. Therefore, the percentages don’t necessarily increase every year, and ALEs must wait for the IRS announcement to confirm each year’s percentage. The ACA penalty amounts are also indexed, but the indexed amounts for 2021 haven’t yet been released.

Even more important

Given the increased attention to health care benefits this year because of the COVID-19 pandemic, it’s even more important to mind all the compliance details of your coverage. Please contact us for assistance in understanding your obligations under the ACA and assessing the costs associated with the health insurance you offer.

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