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IRS to Issue New Health Care Reform Law Affordability Test

August 15, 2011
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Related Topics: Benefit Design and Communication, Health and Wellness, Health Care Benefits, Policies and Procedures, Latest News
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The Internal Revenue Service said it will develop new rules that will make it easier for employers to determine if their health care plans are “affordable” and exempt from a stiff financial penalty mandated by the health care reform law.

Under the law, starting in 2014, employers are liable for an annual $3,000 penalty for those employees whose required health insurance premium contribution for single coverage exceeds 9.5 percent of family income and the employees are eligible for federal premium subsidies to buy coverage through state insurance exchanges.

In rules proposed Aug. 12 that were welcomed by employers, the IRS said it will develop a safe harbor in which coverage would be considered affordable so long as the premium contribution for single coverage did not exceed 9.5 percent of employees’ W-2 wages.

The IRS said it is developing the new safe harbor to give employers more certainty on whether their plans will pass the affordability test.

“Giving employers the ability to base their affordability calculations on their employees’ wages [which employers know] instead of employees’ household income [which employers generally do not know] is intended to provide a more workable and predictable method of facilitating affordable employer-sponsored coverage for the benefit of both employers and employees,” the IRS said in its notice of proposed rule-making. That notice is expected to be published in the Aug. 17 Federal Register.

Employers had complained that it would be difficult—if not impossible—for them to know employees’ household income, creating a big obstacle to determine whether their plans would be considered affordable, said Anne Waidmann, a director with PricewaterhouseCoopers in Washington, D.C.

The IRS safe harbor “would provide more certainty and effective planning,” said Frank McArdle, a principal with Aon Hewitt Inc. in Washington, D.C.

“This will make it easier for employers to do the necessary calculations,” said Chantel Sheaks, a principal with Buck Consultants, also in the District.

The IRS also affirmed that the 9.5 percent affordability test is to be applied only on single coverage, allowing employers to charge higher amounts for family coverage.

“While we think that was clear in the law, employers will welcome the additional clarity,” said James Klein, president of the American Benefits Council in Washington, D.C.  

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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