As we head into 2020, the Affordable Care Act’s (ACA) Employer Mandate is still in effect for Applicable Large Employers (ALEs). These ALEs must provide coverage that is “affordable” to all eligible full-time employees. 

For 2020, coverage is deemed to be “affordable” if the employee is charged no more than 9.78% of their household income. Because it is difficult to calculate an employee’s household income, three safe harbors were put in place to provide an alternative method of calculating affordability. 

The W-2 Safe Harbor Method 
Using this safe harbor alternative, coverage is deemed affordable if the employee is charged no more than 9.78% of current year wages as indicated in Box 1 of their W-2 form. Because you have to use current-year wages, which aren’t known until the end of the year, this seemingly simplistic alternative can delay knowledge of whether the plan is affordable until after the year has completed. An example of the W-2 method is as follows: 

Dave works at ABC Company for the entire year and is offered coverage for all 12 months. Box 1 on his W-2 form shows his wages to be $40,000. The formula to determine affordability is: $40,000 x .0978 divided by 12 months = $326.00 per month. ABC Company will be considered to offer affordable coverage if Dave is not charged more than $326.00 per month for coverage. 

Rate of Pay Safe Harbor Method 
With this method, coverage is deemed to be affordable if the employee is charged no more than 9.78% of their monthly rate of pay at the start of the coverage period. 130 hours is used to determine the monthly rate of pay for hourly employees. The actual number of hours worked is not relevant under this method. The rate of pay method should not be used for employees who receive wages by virtue of tips or employees who are paid solely by commissions. An example using the rate of pay method is as follows: 

Dave works for ABC Company and is paid $15 per hour at the start of the plan year. The formula to determine affordability is $15.00 x 130 hours = $1,950 x .0978 = $190.71 per month. ABC Company coverage will be affordable provided Dave is not charged more than $190.71 per month for coverage. 

Federal Poverty Level (FPL) Safe Harbor Method 
Coverage is deemed affordable if the employee is charged no more than 9.78% of the most recently published mainland FPL for a household of one. A simple example of this is as follows: 

The current mainland FPL for a household of one is $12,490. ABC Company will be considered to offer affordable coverage to employees who are not charged more than $101.79 per month. The formula below is $12,490 x .0978 divided by 12 = $101.79 per month.

2020 Employer Mandate Penalties
As they do each year, the Department of Health and Human Services (HHS) calculates the health insurance premium growth rate. That rate is then used to adjust the amount of the ACA employer mandate penalties. The 2020 employer mandate penalties will be $2,570 for the (a) penalty and $3,860 for the (b) penalty.

Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.