Affordable Care Act: Will Your Group Health Plan be “Affordable” in 2022?

The IRS announced that the Affordable Care Act’s affordability threshold for employer-sponsored group health plans will be 9.61 percent in 2022. Employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) must recognize that next year’s affordability threshold will be lower than the 9.83 percent used in 2021. This means that a group health plan that was affordable in 2021 may be considered unaffordable in 2022, despite being exactly the same. As a result, many ALEs will need to make adjustments to avoid potential ACA penalties in 2022.

ALEs are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid the ACA’s employer shared responsibility (pay-or-play) penalty. Affordability is calculated as a percentage of household income. Since employers typically do not know their employees’ household income, ALEs can use one of the ACA’s affordability safe harbors to determine the most employees can be required to pay without exceeding the affordability threshold.

For example, let’s assume Sam worked 40 hours per week for 52 weeks in 2022. If Sam earned $10 per hour, the most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer is:

  • $166.57 per month (W-2 Safe Harbor Method);
  • $124.93 per month (Rate of Pay Safe Harbor Method); or
  • $103.15 per month (Federal Poverty Line Safe Harbor Method—2021).

If Sam earned $15 per hour, Sam’s required contribution for the lowest-cost, self-only coverage option cannot exceed:

  • $249.86 per month (W-2 Safe Harbor Method);
  • $187.39 per month (Rate of Pay Safe Harbor Method); or
  • $103.15 per month (Federal Poverty Line Safe Harbor Method—2021).

The affordability threshold for group health plans beginning in 2022 is only a fraction of a percent lower than this year’s threshold, but the consequences for ALE’s that fail to adapt accordingly can be substantial. To ensure compliance with the ACA’s affordability requirement in 2022, ALEs need to evaluate and possibly adjust their health plan pricing options, cost-sharing structure, and in some cases, compensation levels.

The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance & Risk.

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