“Affordable” defined

One of the challenges facing employers of all sizes next year is the fact that offering group health coverage could block employees and their family members from the government subsidies that are available in the individual market.

Here’s how the government explains this rule in the Premium Tax Credit Final Regulations:

“The proposed regulations provided that, for taxable years beginning before January 1, 2015, an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage (the required contribution percentage) does not exceed 9.5% of the taxpayer’s household income. While several comments supported this rule, other comments asserted that the affordability of coverage for related individuals should be based on the portion of the annual premium the employee must pay for family coverage.

These final regulations adopt the proposed rule without change. The language of section 36B, through a cross-reference to section 5000A(e)(1)(B), specifies that the affordability test for related individuals is based on the cost of self-only coverage.”

This is different from the definition of “affordability” when talking about the exemption from the individual mandate:

“By contrast, section 5000A, which establishes the shared responsibility payment applicable to individuals for failure to maintain minimum essential coverage, addresses affordability for employees in section 5000A(e)(1)(B) and, separately, for related individuals in section 5000A(e)(1)(C). Thus, proposed regulations under section 5000A, which the Treasury Department is releasing concurrently with these final regulations, provide that, for purposes of applying the affordability exemption from the shared responsibility payment in the case of related individuals, the required contribution is based on the premium the employee would pay for employer-sponsored family coverage.”

So for the subsidies, coverage is considered affordable for the entire family if the cost of SINGLE coverage on the employer plan is less than 9.5% of the household income. But for the individual mandate, coverage is unaffordable and the family is exempt from the shared responsibility payment if the cost of FAMILY coverage is more than 8% of the household income.

There’s some additional information in the final rules on individual shared responsibility (page 33):

“(5) Self-only coverage in an eligible employer-sponsored plan.

The IRS may allow an applicant to claim an exemption for a calendar year if he or she, as well as one or more employed members of his or her family, as defined in 26 CFR 1.36B–1(d), has been determined eligible for affordable self-only employer-sponsored coverage pursuant to section 5000A(e)(1) of the Code through their respective employers for one or more months during the calendar year, but the aggregate cost of employer-sponsored coverage for all the employed members of the family exceeds 8 percent of household income for that calendar year.”

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