What to know about the Treasury’s 2018 ACA affordability curveball
When healthcare reporters call and ask me these days what will happen next regarding so-called Affordable Care Act repeal and replace legislative efforts, I must be the most boring interview in town. My answer is, “I have no idea!”
I certainly wouldn’t have predicted that, as of this writing, the ACA’s employer shared responsibility would be alive and well and gearing up for 2018, or that the Cadillac tax hurricane would still be forecasted to come ashore in 2020.
What I do know is the ACA’s shared responsibility still applies for tax year 2018, and employers with Jan. 1 plan years will soon need to finalize employee premium cost-sharing amounts for the 2018 plan year. And, once those rates are communicated to employees, even a subsequent full repeal of employer-shared responsibility will not cause employers to reverse course, void the 2018 rates and release new, higher rates. Can you imagine?
As you know, the federal regulators offer employers three shared responsibility affordability safe harbors:
Rate of pay
Federal poverty line (FPL)
If your company is subject to the ACA’s employer shared responsibility for 2018 and is using one of these safe harbors, there is a curveball to consider. For 2018, the U.S. Department of the Treasury’s ACA affordability percentage drops from 9.69% to 9.56%. The indexed adjustment is somehow a decrease, not an increase.
What this generally means for those using the Form W-2 safe harbor is that if your lowest Box 1, W-2 wage for 2018 is not expected to rise from 2017 levels, you may need to lower the employee contribution rate for single coverage in your lowest cost plan. Similarly, if you are using the rate-of-pay safe harbor and you are not anticipating raising your lowest hourly rate, you also may need to lower the employee contribution rate for single coverage in your lowest cost plan.
Form W-2 example, using an annual Box 1 wage floor of $20,000:
|Plan Year Beginning ||Lowest Box 1, W-2 Wage ||Affordability Percentage ||Months ||Safe Harbor Ceiling |
|2017 ||$20,000 ||x ||9.69% ||÷ ||12 ||= ||$161.50 |
|2018 ||$20,000 ||x ||9.56% ||÷ ||12 ||= ||$159.33 |
Rate-of-pay example, using an hourly rate of $15 per hour:
|Plan Year Beginning ||Lowest Hourly Rate ||Affordability Percentage ||ACA Monthly Hours Standard ||Safe Harbor Ceiling |
|2017 ||$15 ||x ||9.69% ||x ||130 ||= ||$188.96 |
|2018 ||$15 ||x ||9.56% ||x ||130 ||= ||$186.42 |
Of course, prudent employers round down a dollar or two from the ceiling to build in an accounting cushion.
Meanwhile, as we’ve discussed, the FPL safe harbor is the “easy button” option, the one most of my clients adopted, and, if you found my past arguments compelling, the one you are currently using.
For employers with a Jan. 1 plan year, it also takes most of the bumps out of this road, but in a roundabout way.
The FPL safe harbor is the single federal poverty line multiplied by the ACA affordability percentage. For plan years beginning in 2017, for example, the monthly FPL monthly ceiling is $12,060. At 9.69% over 12 months, it comes to $97.38.
Because the federal government usually releases the tax year poverty line levels after the tax year begins, usually in late January, the Treasury Department allows employers to use the poverty guidelines in effect six months prior to the beginning of the plan year. Thus, unless an employer with a Jan. 1 plan year had a time machine, when they set their 2017 rates in the fall of 2016, they likely used the 2016 single FPL multiplied by the 2017 percentage, which equates to $95.93.
Come fall 2017, this same Jan. 1 plan-year employer will likely use the 2017 single FPL multiplied by the 2018 percentage, which equates to $96.07.
Thus, even though the affordability percentage is decreasing for 2018, this employer’s realized safe harbor ceiling actually increases a few cents from $95.93 to $96.07.
However, for employers with non-calendar year plans that knew the 2017 single FPL in time to take advantage of the higher $97.38 2017 FPL safe harbor ceiling, the Treasury Department’s lowered 2018 affordability percentage may end up reducing their 2018 safe harbor ceiling. But, we won’t know that answer until early 2018, when the 2018 FPL levels are released.
Please be awfully careful when setting employee contribution rates for your 2018 plan year. Ask your benefits consultant, attorney and accountant for guidance.