Employers Beware When Calculating Your Health Premiums for 2020

Large employers must not only offer coverage to avoid the shared responsibility employer mandate penalties, but the cost of coverage must also be affordable.   If you are a large employer required to provide health plan coverage to avoid the shared responsibility penalties, it is prudent to reevaluate your contribution structure each year before open enrollment to ensure that your plan is still “affordable.”   Most employers were diligent about calculating affordability in the first few years the shared responsibility penalties were in effect, but we have seen some start to get lax on continuing to do it each year.  A failure to consider whether your plan is affordable when passing through any premium increases could result in an unintended penalty for each employee who enrolls in exchange coverage and qualifies for financial assistance.

In order to be considered to have offered an affordable plan, the employer must have at least one health plan option where the employee’s share of single coverage is less than the affordability percentage multiplied by the employee’s household income.   The IRS adjusts the affordability percentage each year and for 2020 the cost of single coverage must be less than 9.78% of an employee’s household income in order to be affordable.  This 9.78% is the same percentage that employers need to use when relying on the federal poverty level, rate of pay, or W-2 affordability safe harbor.  The 9.78% is down from the 2019 percentage, which was 9.86%.  Since this percentage went down, employers could end up with an unaffordable plan this year when it was affordable last year even if everything else stayed exactly the same.

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