Affordable Care Act and Benefits Compliance Part 2: Safe Harbors

Now that we’ve looked at the general refresher of how to stay compliant with the Affordable Care Act, let’s review the ways ACA makes health benefits more affordable through its three safe harbors. 

What Does ACA Say About Affordability?

Employers are required to offer health coverage to eligible full-time employees at an affordable rate. You need to look at what the employee pays for their own coverage on the lowest benefit plan that you offer. 

For plans beginning in 2022, the required contribution for employee-only coverage should not exceed 9.61% of the employee’s household income. 

Safe Harbors of the Affordable Care Act

Because employers may not know their employee’s household income, the IRS provides three safe harbors for affordability: 

  • Federal Poverty Level (FPL)
  • Rate of Pay
  • W-2 

Federal Poverty Line Safe Harbor

Under the Federal Poverty Level Line Safe Harbor, affordability is determined based on the federal poverty line for a single individual. Under this safe harbor, employer-provided coverage offered to a single individual is considered affordable if the employee’s cost for self-only coverage does not exceed 9.61% of the FPL for a single individual. The 2022 FPL for an individual is $12,880.

$12,880 x 9.61 = $1,237.77

$1,237.77 / 12 months = $103.14

Employee coverage for the Federal Poverty Line Safe Harbor is $103.14.

Rate of Pay Safe Harbor

The rate of pay safe harbor works great for hourly employees. Under the rate of pay safe harbor, affordability can be determined without the need to analyze every employee’s wage and hours. Use the hourly rate for the lowest-paid employee at the beginning of the plan year. For instance, you can use the lowest hourly rate at $11.50. 

$11.50 x 130 hours = $1,495

$1,495 x 9.61 = $143.67

The employee coverage for the rate of pay safe harbor for hourly employees in this example is $143.67.

W-2 Safe Harbor

The W-2 safe harbor works well for salaried employees, employees who receive tips or employees who consistently work more than 30 hours per week. Estimated wages are entered by the employee on their W-2 forms. 

It is a bit of a guess as to what W-2 wages will be next year. If the employee notes estimated wages at $20,000, this is the number we base our equations on. 

$20,000 / 12 months = $1,922

$1,922 / 12 months = $160.17

The base amount is $160.17 for employee coverage. This option allows the employer to charge more for the employee-only coverage and still be compliant but is sometimes a gamble because the rate is based on the employees’ estimated wages.  

How Can Cornerstone Help With Benefits Compliance?

Because the legislation is ever-changing, we know it can be difficult to keep up with benefits compliance information. AssuredPartners Cornerstone is here to help you make sense of ACA so you can keep your employees informed. Looking for more information on ACA? Here are previous blogs from Cornerstone on changing ACA and CARES Act legislation as well as previous appeals to legislation. 

Whether you need help with benefits administration or are looking to create a wellness program that meets your workplace’s needs, our team has the expertise to assist you.

If you have any questions or concerns about the Affordable Care Act and how it affects you or your employees, contact Cornerstone today.