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ACA Affordability Threshold Has Been Lowered for 2022

The IRS has announced that it will lower the ACA affordability threshold requirement for employer-sponsored health plans in 2022. One of the Affordable Care Act’s (ACA) regulations states that employers must offer health insurance that qualifies as minimum essential coverage (MEC).

In a MEC, employee’s premiums for the lowest-cost, self-only option may not exceed a particular percentage of their household income. This minimum rate is the affordability threshold.

Who is covered?

The ACA affordability threshold applies to Applicable Large Employers (ALE). An ALE is an organization that employs at least 50 full-time equivalent employees- on average during the previous calendar year. However, seasonal workers don’t fall into this total.

What is the new threshold?

The IRS issues an updated ACA affordability threshold on an annual basis. This threshold is designed to account for changes in the market, healthcare premium growth, and the current economy. As a result of these factors the rate for 2022 will be 9.61% down from last years 9.83%.

For calendar year plans, as of January 1, 2022, an ALE’s lowest-cost, self-only coverage option may not exceed 9.61% of an employee’s household income. However, The new affordability threshold will take effect for plans that renew midyear on their respective effective dates.

What consequences come with non-compliance?

The IRS has established two potential penalties based on these two forms of noncompliance: ACA affordability threshold

  1. If an ALE does not offer a MEC to at least 95% of its full-time staff and at least one full-time employee qualifies for the premium tax credit to purchase coverage through the government marketplace.
  2. Even if the ALE offers a MEC to at least 95% of its full-time employees, they may still be subject to the second kind of penalty for each full-time employee who receives the premium tax credit for purchasing coverage through the marketplace instead for the following reasons:
    • Firstly, the MEC offered is not affordable
    • Secondly, the MEC does not provide minimum value
    • Thirdly, the employee is part of the 5% of employees that aren’t offered the MEC

You can learn more about how the IRS calculates the violations here.

How to prepare?

Since the Department of Health and Human Services won’t announce the detailed guidelines for the new threshold until January or February of 2022, organizations must do what they can to be as prepared as possible until then.

Organizations can take some preparatory adjustments that can help you get ahead of the curve. For instance:

  • Changing currently offered plans to a variety that includes both a more expensive option amongst a few other more affordable options that meet the affordability requirements.
  • Changing how much you contribute to each employee’s coverage plan to ensure it meets the affordability requirements.

Moreover, this ever-changing landscape emphasizes the importance of working with a trusted adviser or partner to ensure compliance. Ensuring compliance can help avoid costly mistakes down the line.

Learn more about how Payroll Systems can seamlessly integrate pre-tax benefits into its payroll service to help you empower your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.