IRS Sets 2023 Health Plan Premium Affordability Threshold at 9.12% of Pay

The IRS introduced that the 2023 well being plan affordability threshold—used to find out if an employer’s lowest-premium well being plan meets the Inexpensive Care Act’s (ACA’s) affordability requirement—shall be 9.12 p.c of an worker’s “family earnings,” down from the 2022 restrict of 9.61 p.c.

The brand new affordability threshold price was included amongst well being plan tax provisions in
IRS Income Process 2022-34, issued on July 25. The affordability threshold, which impacts employers’ potential legal responsibility for ACA shared-responsibility penalties, is adjusted yearly based mostly on well being plan premium progress relative to earnings progress, utilizing nationwide well being expenditure knowledge from the Facilities for Medicare and Medicaid Providers.

The adjusted proportion applies on a plan-year—not calendar-year—foundation, and noncalendar-year plans will proceed to make use of 9.61 p.c to find out affordability in 2023 till their new plan yr begins.

Below the ceaselessly used federal poverty line (FPL) protected harbor for figuring out “family earnings” in relation to affordability:

  • The highest premium for an employer’s lower-cost, self-only 2023 plan shall be $103.28 per 30 days, based mostly on a look-back 2022 FPL of $13,590 in annual earnings. (Laws enable employers to make use of the revealed FPL price in impact six months previous to the start of the plan yr.)

  • That is nearly the identical because the 2022 plan yr high premium of $103.15 per 30 days, based mostly on a look-back 2021 FPL of $12,880.

Employer Concerns

For group well being plan choices supplied to staff through the upcoming fall open enrollment interval, “employers ought to overview the required worker contribution for 2023 protection in the event that they plan to fulfill the ACA’s affordability restrict underneath the relevant protected harbor,”
defined an alert by Dorian Z. Smith, a accomplice at HR consultancy Mercer in New York Metropolis, and Cheryl Hughes, a principal within the agency’s Washington, D.C. workplace.

Brian Gilmore, lead advantages counsel at Newfront, an insurance coverage and monetary companies agency in San Francisco,
wrote in an alert that “employers with a calendar plan yr providing a medical plan choice in 2023 that prices staff not more than $103.28 per 30 days for employee-only protection will routinely meet the ACA affordability normal underneath the federal poverty line affordability protected harbor that deems protection inexpensive for all full-time staff.”

He added, “The place attainable inside budgetary constraints, employers ought to put together to supply a minimum of one medical plan choice to full-time staff in all areas with an employee-share of the premium not exceeding $103.28/month for employee-only protection to simplify affordability compliance underneath the federal poverty line protected harbor.”

Family Earnings Secure Harbors

“The IRS acknowledged that an employer would don’t have any technique to decide a person’s family earnings, so consequently the IRS created three affordability protected harbors that an employer can use to fulfill the employer’s affordability threshold,” in keeping with
an alert by Accord Techniques LLC, an ACA compliance software program agency. “An employer wishing to make use of one of many affordability protected harbors will use the 2023 affordability threshold of 9.12 p.c when figuring out if the protected harbor has been happy.”

three protected harbors for family earnings are:

  • An employee’s W-2 wages, as reported in Field 1, typically as of the primary day of the plan yr. The Kind W-2 affordability protected harbor “gives little predictability as a result of staff’ Field 1 wages are unknown till January of the next yr,” Gilmore identified.

  • An worker’s price of pay, which applies the affordability threshold proportion based mostly on two separate checks—one for hourly full-time staff and one other for salaried full-time staff.

  • The federal poverty line, as revealed yearly by the Division of Well being and Human Providers.
    The 2022 FPL is $13,590 for people (though barely totally different for workers in Hawaii and Alaska). For 2023 calendar-year plans, the $13,590 FPL is split by 12 and multiplied by 9.12 p.c, which equals an allowable month-to-month premium of $103.28, rounded to the closest penny.

Selecting a Secure Harbor

Relevant giant employers (ALEs)—these with 50 or extra full-time or equal staff—are topic to the ACA’s share accountability protection mandate. These employers ought to at all times use the FPL protected harbor the place accessible as a result of it leads to protection routinely being deemed inexpensive with no per-employee calculations mandatory, Gilmore suggested.

Employers that don’t provide a medical plan choice assembly the FPL protected harbor, he famous, ought to as a substitute use the rate-of-pay protected harbor, which “requires an easy evaluation” of the bottom hourly price of pay for hourly full-time staff and the bottom month-to-month wage for salaried full-time staff.

Though extra sophisticated to calculate, the rate-of-pay protected harbor typically permits for larger premiums, Gilmore famous, as within the following examples he gave for a 2023 calendar-year plan:

  • If the lowest-paid hourly worker makes $15 an hour, the utmost premium can be $177.84 per 30 days.

  • If the lowest-paid full-time salaried worker makes $36,000, the utmost premium can be $273.60 per 30 days.

ACA Penalties

ALEs that don’t provide a plan that’s inexpensive and gives
minimal important protection to a minimum of 95 p.c of their full-time employees and dependents could also be topic to
employer penalties underneath Inner Income Code Part 4980H(a). This yr, Part 4980H(a) penalties are $229.17 a month or $2,750 annualized, per worker.

Plans that are not “inexpensive” and do not present
minimal worth could also be topic to Part 4980H(b) penalties, which this yr are $343.33 a month or $4,120 annualized, per worker.

In January, the IRS will make inflation changes to those penalties for 2023 plans.

Wellness Packages with Premium Incentives

Some staff have the choice of taking part in office wellness packages that decrease their well being plan premiums, typically conditioned on assembly specified well being targets. 

“In figuring out whether or not the self-only contribution quantity satisfies affordability, aside from wellness packages designed to stop or cut back tobacco use, affordability shall be decided assuming that every worker fails to fulfill the necessities of the wellness program,” famous HR consultancy Buck
in a put up by Richard Stover, a principal on the agency, and Randie Thompson, the agency’s compliance director.

“For wellness packages which might be designed to scale back or forestall tobacco use, affordability will be decided assuming that every worker satisfies the necessities of the wellness program,” the consultants defined. “If the plan has an opt-out credit score for waiving protection, typically that credit score must be added to the self-only contribution quantity in figuring out affordability.”

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