Earlier we talked about the Affordable Care Act, what it wanted to achieve, and how it set out to do that. One of the key terms used is “Affordable Coverage.” If you remember the ACA wanted to lower the overall cost of health care so that more people would have insurance.
But what does Affordable Coverage actually mean? More importantly, when should we care about it.
Affordable Care Explained
Affordable coverage is a term given to employer-based health insurance (that’s health insurance we get from our jobs) that meets a series of requirements pertaining to both the overall cost of the plan and what services the plan covers.
The requirement of affordable care only applies to companies that are required to offer their employees health insurance. For those that do not have access to group health plans, ACA plans already meet these requirements by design. For these groups, the insurance they offer needs to be affordable, both in monthly premiums & in cost-sharing, while also covering the essential health benefits.
For premiums, the plan is considered affordable if the total amount spent on those premium is less than 9.12% of the household income. For example, if your monthly income is $5,000 ($60,000 per year), then your health care is considered affordable if the monthly premium is less than $456 (5000*9.12%).
In terms of cost-sharing (which includes deductibles, copayments, and coinsurance), the plan needs to cover at least 60% of the expected medical cost, such as doctors visits, prescriptions medications, and hospital stays.
Finally, the plan offered must also cover the essential health benefits, which are a list of services that all plans must cover under the ACA.
There are few more details and a few asterisks, but this is the basic idea of what needs to be offered.
So, affordable care is a health coverage that cost less per month than 8.39% of your income for a plan that covers no less than 60% of all expected medical cost. The plan itself must also cover the essential health benefits.
What if my group insurance is not affordable care?
There are a couple of things to look at here. For the first part, let’s assume that the insurance being offered by your employer covers 60% of the estimated medical cost. Now depending on who the insurance is not affordable for opens up a couple of different options.
Remember, affordability is based off a percentage of income per person. Going back to previous example above, a plan that cost less than $456 per month is considered affordable. This $456 is per person though. With group plans, the employee is usually the least expensive as part of their premiums are covered by the employer. Dependents and spouses cost more per month as their premiums are not usually paid for by the employer.
If you, the employee had affordable coverage, but the cost of the premiums were not considered affordable for your spouse, then your spouse would be eligible to purchase a plan on the Marketplace with a PTC. If the two of you had kids or other dependents, they also would be eligible to receive the PTC.
If the employee themself is the one who does not have affordable coverage, the employee (plus any spouses/dependents) will be able to purchase insurance from the Marketplace with a PTC.
For the second part, let’s assume that the plan is not minimum essential coverage. Regardless of the cost of the plan, you would receive a PTC to purchase insurance on the marketplace.
If any of these things happen, the employer may be subject to two types of penalties called ’employer-shared responsibility payments.’ With both of these penalties, the money collected is used to pay for the premium tax credit that the employee receives from a Marketplace plan.
The Family Glitch
Through 2022, the affordability determination was based only on the cost of coverage for just the employee, regardless of the cost to add family members to the plan. This meant that if the employee’s coverage was considered affordable, the entire family was then ineligible for subsidies (premium tax credits) to offset the cost of coverage through the exchange.
This is what was known as the family glitch, and if meant that some families had no realistic access to affordable health care. The price to cover the entire family under an employer’s plan was just not affordable for some families. But because the employee-only coverage was considered affordable, the family also lost access to subsidies used to purchase different coverage in the Marketplace.
As of 2023, the family glitch has been fixed and new rules allow for eligible families to receive PTCs from the Marketplace. When the family is offered employer-sponsored coverage, the affordability calculation is made separately for the employee and for the family.
How does my company know what is affordable for my household?
When considering coverage for employees, the company needs to consider, in part, what your household income is. If you work full-time and your employer coverage end up being unaffordable, your employer is on the hook for a substantial penalty. But employers do not typically have access to data regarding employees total household incomes.
The address this problem, the IRS created three ‘safe harbor’ calculations that employers can use. As long as the coverage that employer offers is considered affordable using one of these methods, the employer will not need to pay the potential penalties.
The three methods used aer the W2 wages, Rate of Pay, or the Federal Poverty Level safe harbor. The employer is responsible for determining which method should be used to calculate affordability and indicates which method it used when filing taxes each year.
Takeaways
Affordable Care, health coverage in general, is always changing. What is considered affordable change each year. Even as recent as 2023, significant changes opened up opportunities for many through changes to the family glitch. Despite these changes, the system is still far from perfect. Many families aer still without coverage.
If you are one of these people, or if you just want to explore your options, give us a call and we can talk.
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