Article Title: Emplyer-Spnsred Affrdability Test (9.5%) Dmain SHOP Market: Eligibility and Enrllment Subject: Tpic: Eligibility fr Cvered Califrnia Subtpic: Date Published: 1/31/2014 Eligibility fr Small Businesses and Emplyers Eligibility fr Financial Assistance Intrductin 1 r 2 paragraphs that can be used t set cntext r be used as talking pints Affrdable plans and the 9.5% standard A jb-based health plan is cnsidered affrdable if the emplyee s share f premiums fr the lwest cst self-nly cverage that meets the minimum value standard is less than 9.5% f their family s incme. In ther wrds, if yur share f yur premiums fr a plan that cvers nly yu (the emplyee)-- nt yur family--is less than 9.5% f yur family s incme, the plan is cnsidered affrdable. Yu may pay mre than 9.5% f yur incme n premiums fr spuse r family cverage frm yur emplyer. But affrdability is determined nly by the amunt yu d pay fr self-nly cverage frm yur emplyer. Emplyer Shared Respnsibility Prvisin: Under the Affrdable Care Act, mst large emplyers are required t prvide health care cverage that is bth affrdable and cmprehensive. If large emplyers d nt ffer cverage at all r cverage that is nt affrdable and cmprehensive, then their emplyees can apply fr cverage with premium assistance (tax credit) thrugh Cvered Califrnia. If an emplyee enrlls in a Cvered Califrnia plan and des receive this tax credit then the emplyer may be subject t penalties. Tday s Date: 1/31/2014 Page 1 f 8
Key Pints 3-5 bullet pints Affrdability Premium Assistance: Emplyer spnsred cverage is cnsidered affrdable if the emplyee s share f the annual premium fr self-nly cverage is n greater than 9.5% f annual husehld incme after emplyer cntributin. Husehld Incme: Husehld incme fr this purpse is defined as the mdified adjusted grss incme f the emplyee and any members f the emplyee s family fr whm the emplyee prperly claims a tax deductin fr a persnal exemptin fr the taxable year (which wuld include any spuse and dependents) and wh are required t file an incme tax return. Emplyer Safe Harbr. Under the Emplyer Shared Respnsibility prvisins f the Affrdable Care Act (ACA) (which have nw been pstpned until 2015), n penalty can be impsed n an emplyer wh ffers grup health plan cverage t at least 95% f emplyees wh wrk n average at least 30 hurs per week, and their dependents, if that cverage meets ACA requirements fr affrdability and minimum value. Affrdability Glitch : The affrdability test is based n the affrdability f self-nly cverage available t the emplyee and des nt cnsider the premium rate fr a family r ther dependents. Therefre, the spuse r ther dependent s rate is nt included in the calculatin fr affrdability and has n effect n the determinatin that cverage is affrdable. This als means that the spuse and dependents wuld be ineligible fr any type f financial assistance thrugh Cvered Califrnia r the federally facilitated marketplace. This is nly applicable t individuals that have an ffer f cverage frm their spuse s emplyer. Additinally, the Affrdable Care Act requires cverage t be ffered t minr dependents; almst all children may be affected by the kid s glitch and is nt dependent n the ptinal ffer f cverage like it wuld be fr spuses. Details Elabrate key pints Affrdability: Cverage is affrdable if n emplyee is required t pay mre than 9.5% f his/her husehld incme fr self-nly cverage under the emplyer s lwest-cst ptin that prvides minimum value. The prpsed regulatins n Emplyer Shared Respnsibility (issued 12/28/2012) established three safe harbrs an emplyer can meet t cmply with the Affrdability test. See belw fr an explanatin f the three safe harbrs. Minimum Value: Cverage meets minimum value requirements if the plan pays at least 60% f the actuarial value r ttal allwed csts f benefits cvered under the plan. This means that the emplyee pays via deductibles, cinsurance, cpayments and ther ut-f-pcket Tday s Date: 1/31/2014 Page 2 f 8
Details Elabrate key pints amunts, excluding the premiums nt mre than 40% f the actuarial value f benefits under the plan. Based n statements by HHS (in the preamble t the prpsed regulatins n Essential Health Benefits and Actuarial Value), mst grup health plans currently meet the 60% actuarial value requirement. An example f an emplyer plan that prbably wuld nt meet the 60% requirement is a mini-med r catastrphic plan. Als nte that the Affrdability test is based n the emplyee cst fr self-nly cverage even if the emplyee in fact has a family and needs family cverage. This pint is significant because it affects family members eligibility fr a subsidy if they buy insurance in the Exchange/Marketplace. If emplyer-prvided cverage is available even if nt affrdable family members will nt be eligible fr a subsidy. The Three Affrdability Safe Harbrs: In respnse t emplyers cmments that they will nt knw their emplyees husehld incmes (i.e., their mdified adjusted grss incme (MAGI) frm their prir year s federal tax return), the prpsed regulatins n Emplyer Shared Respnsibility include three safe harbrs emplyers can use instead f husehld incme. Cmpliance with a safe harbr means that an emplyer will be deemed cmpliant with the law and cannt be subject t penalties. Use f any f the safe harbrs is ptinal, and an emplyer may apply the safe harbrs fr any reasnable categry f emplyees prvided it applies the safe harbr n a unifrm and cnsistent basis fr all emplyees in a categry. Thus, the Affrdability test is that the emplyee cst fr self-nly cverage under the emplyer s lwestcst ptin that prvides minimum value cannt be mre than 9.5% f ne f the fllwing amunts: W-2 incme: The emplyee s W-2 incme (Bx 1) frm the emplyer fr the year Rate f Pay (Mnthly): The hurly rate f pay times 130 hurs per mnth, r mnthly salary fr salaried emplyees Federal Pverty Line: 100% f the Federal Pverty Line (FPL) fr an individual Additinal Infrmatin abut Each Safe Harbr W-2 incme: The emplyee s W-2 incme (Bx 1) frm the emplyer fr the current year Disadvantages: Bx 1 incme des nt include pre-tax cntributins fr 401(k) r cafeteria plans, This is calculated n an emplyee-by-emplyee basis, and The emplyer will nt knw the exact amunt until after the end f the year. The prpsed regulatins prvide that the emplyee s required cntributin generally must remain a cnsistent amunt r percentage f W-2 wages during the year, s an Tday s Date: 1/31/2014 Page 3 f 8
Details Elabrate key pints emplyer cannt frntlad the mnthly emplyee cst and then reduce it late in the year. Emplyers wh select this safe harbr may need t define the emplyee cntributin as 9.5% f W-2 wages, but nt mre than $XX per mnth. Advantages: This includes all hurs the emplyee actually wrked and hurs fr which n wrk was perfrmed but the emplyee was paid r entitled t payment (e.g., paid hlidays and vacatin, paid leave and disability). It is nt limited t 130 hurs/mnth, as is the Rate f Pay safe harbr belw. The maximum amunt: Based n $8/hur and 40 hurs/week and 52 weeks/year, the maximum emplyee cntributin (fr self-nly cverage) per mnth wuld be $131 (culd be mre if emplyee wrked vertime but less if emplyee made pre-tax 401(k) r cafeteria plan cntributins). Rate f Pay (Mnthly): The rate f pay as f the first day f the plan year fr each emplyee wh is eligible t participate in the health plan as f the beginning f the plan year. Fr hurly emplyees, this is defined as 130 hurs times the hurly rate f pay as f the first day f the plan year. Fr salaried emplyees, emplyers will use the mnthly salary regardless f hurs n which it is based. Nte that if an emplyer uses the rate f pay f the lwest-paid emplyee and multiplies this by 9.5%, the resulting mnthly amunt will meet the test fr all emplyees. Disadvantages: The emplyer can nly multiply the hurly amunt by 130 hurs per mnth, even if emplyees actually wrk mre hurs. This safe harbr can nly be used if the emplyer des nt reduce emplyees rates f pay during the plan year. Advantages: Althugh technically this is calculated n an emplyee-by-emplyee basis, it can als be a fail-safe design-based safe harbr because if the Affrdability test is met fr the lwest-paid emplyee, then it will als be met fr all ther emplyees. The emplyer can calculate the maximum amunt fr affrdability as f the beginning f the plan year and need nt wait until after the end f the year t determine it. The maximum amunt: Based n $8/hur and 130 hurs per mnth, the maximum emplyee cntributin (fr selfnly cverage) per mnth wuld be $98.80. (Based n $7.25/hur, the federal minimum wage, the maximum mnthly amunt wuld be nly $89.54.) Federal Pverty Line: 100% f the Federal Pverty Line (FPL) fr an individual. Fr 2013, this amunt was $11,490. This will apply fr the 2014 calculatin. Disadvantages: Tday s Date: 1/31/2014 Page 4 f 8
Details Elabrate key pints The Maximum Amunt: Based n $11,490, the maximum emplyee cntributin (fr self-nly cverage) per mnth wuld be nly $90.96. Advantages: This is nt a separate calculatin fr each emplyee. It is a fail-safe safe harbr that will apply even if the amunt is less than an emplyee s actual incme fr the mnth r year. This safe harbr may be mst useful fr emplyers wh use the lk-back measurement perid t determine if variable hur r seasnal emplyees have full-time status. Scenaris 2-5 scenaris Affrdability Test Example 1: In 2014, Rev. Ryan has MAGI f $47,000 (ttal cmpensatin f $60,000, less $10,000 under the husing exclusin and $3,000 that Ryan cntributes pre-tax t the United Methdist Persnal Investment Plan [UMPIP]). Ryan is an emplyee (fr this purpse) f First United Methdist Church (FUMC), which ffers its emplyees health cverage thrugh its annual cnference plan and requires Ryan t cntribute $1,800 annually fr self-nly cverage fr 2014 (this is 3.8% f Ryan s MAGI). Because Ryan s required cntributin fr self-nly cverage des nt exceed 9.5% f MAGI, FUMC s plan is defined as affrdable fr Ryan; therefre Ryan is eligible fr minimum essential cverage in 2014. This means that if Ryan decided t seek health insurance cverage n his state s Exchange, he wuld be denied premium assistance tward that cverage, even if he might therwise qualify based n MAGI. An earlier final regulatin n the premium tax credit (PTC), hwever, had left pen the questin f what wuld happen if an emplyed individual can affrd self-nly cverage fr 9.5% f MAGI r less, but cannt affrd the higher-priced family cverage. Wuld the family, r at least the family members ther than the emplyee, be able t frg the emplyer cverage and qualify fr PTCs? Update: The February 1 IRS final rule determined when an emplyer-spnsred plan is cnsidered affrdable fr an individual related t the emplyee, i.e., spuses and dependents, fr purpses f the APTC. The final rule clarifies that beginning January 1, 2014, an eligible emplyer-spnsred plan is affrdable fr related individuals if the prtin f the annual premium the emplyee must pay fr self-nly cverage (the required cntributin percentage) des nt exceed 9.5% f the emplyee s [MAGI]. Essentially, the rule requires nly that emplyers pay a significant prtin f the cst t cver the emplyee. The rule allws emplyers t charge emplyees higher amunts fr cvering Tday s Date: 1/31/2014 Page 5 f 8
Scenaris 2-5 scenaris dependents withut wrrying that the emplyee will pt ut f the emplyer cverage and seek PTCs fr Exchange cverage (which culd cause a penalty t accrue t the emplyer under the emplyer mandate in sme circumstances). Affrdability Dependent s Glitch Example 2: In 2014, Reverend Beverly has MAGI f $47,000. Beverly is an emplyee f FUMC, which ffers emplyees health cverage thrugh the annual cnference plan. Beverly is married t Gerry. FUMC s plan cvers dependents f emplyees and requires Beverly t cntribute $6,000 fr cverage f herself and Gerry. This amunt is equal t 12.8% f Beverly s MAGI (husehld incme). Hwever, FUMC s plan wuld require Beverly t cntribute nly $2,400 fr self-nly cverage. Because the $2,400 required cntributin fr self-nly cverage des nt exceed 9.5% f MAGI ($2,400 is 5.1% f Beverly s MAGI), FUMC s plan is cnsidered affrdable fr Beverly and Gerry (despite that the actual cst f cvering bth individuals is 12.8% f MAGI). Therefre, Beverly and Gerry are cnsidered eligible fr minimum essential cverage frm the FUMC emplyer plan, and bth are precluded frm btaining a PTC n an Exchange. This is true even if Beverly declines cverage fr Gerry because he was ffered affrdable emplyer-spnsred cverage under the ACA s APTC affrdability rule. FAQs Frequently asked Questins and Answers. This will be used fr a variety f different uses including Certificatin Exam Questins, Marketing/Cmmunicatins, etc. Affrdability Q &As Des the 9.5% incme threshld apply t Individual Family Plans r emplyer grup plans? Emplyer-spnsred cverage is cnsidered affrdable if the emplyee's share f the annual premium fr self-nly cverage is n greater than 9.5% f annual husehld incme after emplyer cntributin. Can smene wh currently has health insurance cverage thrugh their emplyer change t Cvered Califrnia? If yu already have health insurance prvided by yur emplyer that is affrdable and prvides minimum value, yu will nt be eligible fr financial assistance thrugh a Cvered Califrnia plan. Hwever, if yu are paying mre than 9.5 percent f yur husehld incme tward yur emplyer-spnsred insurance premiums r yur emplyer-spnsred health plan des nt Tday s Date: 1/31/2014 Page 6 f 8
FAQs Frequently asked Questins and Answers. This will be used fr a variety f different uses including Certificatin Exam Questins, Marketing/Cmmunicatins, etc. cver at least 60% f the ttal allwed csts f benefits prvided t yu, then yu may be eligible fr financial assistance available thrugh Cvered Califrnia. If that cverage is determined t be affrdable and adequate, then yu cannt receive premium assistance fr new insurance purchased thrugh Cvered Califrnia. Can yu pt ut f emplyer prvided insurance? If yu already have health insurance prvided by yur emplyer that is affrdable and prvides minimum value, yu d nt need t d anything. If yu are paying mre than 9.5 percent f yur husehld incme tward insurance premiums, then yu may be eligible fr financial assistance available thrugh Cvered Califrnia. If yu have insurance frm yur emplyer and apply fr a tax credit, it will be determined whether yur emplyer-spnsred plan is affrdable and prvides adequate cverage. If that cverage is determined t be affrdable and adequate, then yu cannt receive a gvernment tax credit fr new insurance. If husband and wife are in the family affrdability glitch, can the unemplyed husband simply apply fr Medi-Cal based n lw wn incme, r des Medi-Cal als require filing jintly and therefre catch him thrugh wife's (and therefre husehld) higher incme? N. The wife's incme, s lng as they are legally married, will always cunt in the ttal husehld incme regardless f tax filing status. If the husband and the wife's cmbined incme exceed the incme requirements t receive Medi-Cal then the husband wuld nt be eligible fr Medi-Cal. If my emplyer-prvided insurance des nt include spusal and dependent cverage will my spuse and dependents qualify fr a subsidized Cvered Califrnia plan? Yes, yur family may qualify fr a subsidized Cvered Califrnia plan if yur emplyerprvided insurance des nt include r ffer spusal and dependent cverage. Their eligibility fr subsidies wuld be based n yur husehld size and incme. Tday s Date: 1/31/2014 Page 7 f 8
Supprting Materials Please include the title and all relevant links t Scripting; step actin table; charts/visuals; helpful hints; flwcharts; publicatins r materials. (The majrity f Cvered Califrnia develped materials shuld be stred in SharePint) Supprting News Article: http://thehill.cm/blgs/flr-actin/senate/290537-wydenhealthcare-laws-family-glitch-leaves-dependents-withut-cverage Bibligraphy/Reference Material (Links and citatins t law/regs; advcates material; CvCA frmal backgrund) Affrdability Regulatin IRS http://www.irs.gv/pup/newsrm/td%209611.pdf IRS Safe Harbr Prvisin/Regulatin: http://www.irs.gv/pub/irs-drp/n-11-73.pdf Healthcare.gv: https://www.healthcare.gv/what-if-i-have-jb-based-health-insurance/ Dependent Cverage Affrdability Rule under Emplyer Plans: http://www.gbphb.rg/assets/1/7/4523.pdf Key Wrds (Tp Search wrds t find article) 9.5%, affrdability, affrdability test, kid s glitch, family glitch, emplyer spnsred cverage, ESI Tday s Date: 1/31/2014 Page 8 f 8