The Internal Revenue Service announced that the “affordability” percentage for employers to avoid an Affordable Care Act Shared Responsibility Payment is increasing for 2021.
The ACA’s employer shared responsibility provision requires applicable large employers (employers with 50 or more full-time employees, including full-time equivalent employees in the previous year) to either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer penalty payment to the IRS.
Under the employer shared responsibility provisions in the ACA, an “applicable large employer” could potentially be subject to a shared responsibility assessable payment (i.e., penalty) in a calendar month if the employer:
1.) fails to offer at least 95% of its “full-time” employees the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan, and one of its “full-time” employees receives a premium tax credit for coverage purchased through the Marketplace ( Code Sec. 4980H(a) liability); or
2.) does offer at least 95% of its “full-time” employees the opportunity to enroll in MEC that is affordable and provides minimum value, but one or more “full-time” employees purchases coverage in the Marketplace and receives a premium tax credit ( Code Sec. 4980H(b) liability).
Health insurance coverage is considered “affordable” to an employee if the lowest cost self-only only health plan is 9.5% or less of a full-time employee’s household income. This percentage is indexed for inflation. In 2020, this percentage increased to 9.78%. The percentage for 2021 will increase to 9.83%. In previous years, the premium growth rate was determined by per enrollee spending for employer-sponsored insurance as published in the National Health Expenditure Account by the Department of Health and Human Services (DHHS).