For a disability extension to be available, the following criteria must occur:

1) The qualifying event must be attributed to termination of employment or a reduction in hours; and

2) A qualified beneficiary must be considered disabled by the Social Security Administration at any time during the first 60 days of COBRA coverage; and

3) The qualified beneficiary must notify the plan administrator of the disability determination within 60 days after the latest of a) the date of the Social Security disability determination, b) the date of the qualifying event, c) the date of the loss of coverage associated with the qualifying event, or d) the date the qualified beneficiary is informed of the requirement to provide notice of a disability, such as through the COBRA Initial Notice or a Summary Plan Description (SPD); and

4) The qualified beneficiary must provide notice to the plan administrator before the end of the 18-month period following the qualifying event.

Although the primary purpose of the extension of coverage is to allow the disabled qualified beneficiary to remain on COBRA until they are eligible for Medicare, the disability extension applies to all qualified beneficiaries. That means all family members who had coverage at the time of the qualifying event are eligible to receive an extra 11 months of COBRA coverage, not just the disabled family member. This is true even if the disabled family member does not elect COBRA because the extension applies independently to each of the qualified beneficiaries. This is confirmed in Treas. Reg §54.4980B-8 Q/A-1(b), Example 2.

During the first 18 months of COBRA coverage that are attributed to a loss of coverage because of termination of employment or a reduction in hours, the plan administrator may charge qualified beneficiaries up to 102% of the plan premium. During the 11-month disability extension, the plan administrator may charge qualified beneficiaries up to 150% of the plan premium.

It should be noted that a disability extension is not the only way that the maximum duration of COBRA coverage can be extended. For example, there could be secondary qualifying events that occur, but those topics are not addressed in this article.

 The Internal Revenue Service (IRS) recently issued Rev. Proc. 2023-29 which includes information about the changes to the affordability percentage as it relates to the Employer Mandate for 2024.

The Notice also includes information about the 2024 advanced premium tax credits available for eligible individuals who purchase coverage through a state or federal Marketplace.

As it relates to the Employer Mandate, an offer of coverage will be considered affordable in 2024 if the employee has to pay no more than 8.39% of their household income for the lowest cost, self-only coverage plan. This is a decrease from the 2023 percentage which is 9.12%.

As most employers don’t know the household income of their employees, employers may continue to rely on the three safe harbors available when determining affordability of coverage (W-2 safe harbor, Rate of Pay safe harbor, Federal Poverty Level safe harbor).

There will be no changes to the advanced premium tax credit calculations. For 2021 through 2025, the American Rescue Plan Act of 2021 (ARPA) and the Inflation Reduction Act of 2022 (IRA) removed the income limit to qualify for an advanced premium tax credit and increased the amount of the advanced premium tax credit at all income brackets.

The most that an eligible individual or family will have to pay for the second-lowest priced silver plan on the Marketplace will range from 0% to 8.5% of their household income according to the following table:

The Employer Mandate guidelines state that coverage is affordable when an employee has to pay no more than 9.5% of their household income (inflation-adjusted to 8.39% for the 2024 plan year) for self-only coverage which is offered, but which employers know the household income of an employee?

As a result, there are three alternative methods that an employer can rely upon when determining if the coverage they offer is affordable. These methods are explained below and some general examples of how to apply each method have also been provided. Assume in each example that the employer operates a calendar plan year for 2024.

W-2 Safe Harbor Method

Coverage is deemed affordable if the employee is charged no more than 8.39% of current year wages according to Box 1 of their W-2. Please note that this method is relatively simple to apply, but it uses current year wages which will not be known until the 2024 year is over. That means an employer may not know if coverage is affordable until after the conclusion of the year.

Example 1. 

Joe is employed at XYZ Inc. for the entire year and is offered coverage for all 12 months. His wages according to Box 1 of his W-2 are $28,000. XYZ Inc. will be considered to offer affordable coverage provided Joe is not charged more than $195.76 per month for coverage. The formula is ($28,000 x .0839)/12 = $195.76.

Example 2.

Joe is hired by XYZ Inc. on May 15, 2024, and he is offered coverage after his waiting period on August 1, 2024. His W-2 wages according to Box 1 of his W-2 are $20,000. In this scenario, an adjustment should be made to the W-2 wages used in the affordability calculation since Joe was not employed for the entire year and he was subject to a waiting period before coverage was offered.

Formula = W-2 wages * (calendar months offered coverage/months of employment) = $20,000 * (5/8) = $12,500

The W-2 wages used in the affordability calculation are adjusted to $12,500 for the 5 months Joe is offered coverage. XYZ Inc. will be considered to offer affordable coverage provided Joe is not charged more than $209.75 per month for coverage. The formula is ($12,500 x .0839)/5 = $209.75.

Rate of Pay Safe Harbor Method

Coverage is deemed affordable if the employee is charged no more than 8.39% of their monthly rate of pay at the start of the coverage period. Always use 130 hours when determining the monthly rate of pay for hourly employees regardless of actual hours worked. For salaried employees, affordability is tied to the monthly salary at the start of the coverage period. The rate of pay method should not be used for employees who receive wages by virtue of tips or employees who are paid solely by
commissions.

Example 1.

Kathy works for XYZ Inc. and makes $15 per hour as of the start of the plan year. XYZ Inc.
will be considered to offer affordable coverage provided Kathy is not charged more than $163.60 per
month for coverage. The formula is ($15 x 130) x .0839 = $163.60.

Example 2.

Kathy works for XYZ Inc. and has a $30,000 annual salary as of the start of the plan year.
Kathy’s pro-rated monthly salary is $2,500 ($30,000 / 12 = $2,500). XYZ Inc. will be considered to offer
affordable coverage provided Kathy is not charged more than $209.75 per month for coverage. The
formula is $2,500 x .0839 = $209.75.

Federal Poverty Level (FPL) Safe Harbor Method

Coverage is deemed affordable if the employee is charged no more than 8.39% of the most recently published mainland FPL for a household of one.

Example.

The most recently published mainland FPL for a household of one is $14,580. XYZ Inc. will
be considered to offer affordable coverage to employees who are not charged more than $101.93 per
month for coverage. The formula is ($14,580 x .0839)/12 = $101.93.

Please note the above information applies for plan years in 2024 that start prior to July 1, 2024. An adjusted mainland FPL income amount will be made available and is to be used in the affordability calculation for plan years beginning on or after July 1, 2024.

Health Flexible Spending Accounts (Health FSAs) are subject to maximum contribution limits under the Affordable Care Act (ACA), but certain situations can make it tricky to determine how much can be contributed to a Health FSA. Those situations are explained below.

Salary Reduction Contribution limit

For plan years starting in 2023, an employee may contribute up to $3,050 to a Health FSA through pre-tax salary reductions. Employers may optionally set lower contribution limits, but \$3,050 is the maximum pre-tax salary reduction contribution limit allowed under the ACA. This number is adjusted for inflation each year.

Employer Contributions

Employers may contribute above and beyond the $3,050 pre-tax salary reduction contribution limit. Employers may contribute either the greater of 1) up to $500, or 2) up to a dollar-for-dollar match of an employee’s pre-tax salary reduction contribution. That means an employee could have up to \$6,100 in their Health FSA from their own contributions and the employer’s matching contribution.

Carryover Contributions

At the option of the employer, unused Health FSA funds may be carried over into the following plan year. Up to $570 may be carried over from the 2022 plan year into the 2023 plan year ($610 for the 2023 plan year into the 2024 plan year). Carryover funds do not count against the salary reduction contribution limits or the employer contribution limits. That means an employee could have up to $6,670 available to them in the 2023 plan year from their own contributions, the employer’s matching contributions, and carryover of unused funds from the prior plan year.

Short Plan Years

Salary reduction contribution limits must be pro-rated for short plan years. For example, a 6-month plan year that starts in 2023 would only allow pre-tax salary reduction contributions of up to $1,525.

Multiple FSAs

If an employee works for multiple employers and is eligible for more than one Health FSA, they can make pre-tax salary reduction contributions of up to $3,050 into each Health FSA. This assumes the employers are not part of the same controlled or affiliated group. If the employers are part of the same controlled or affiliated group, then the most that can be contributed is a combined $3,050 amongst the various Health FSAs available to the employee.

Both Spouses Eligible for a Health FSA

If both spouses are eligible for a Health FSA, both can separately make pre-tax salary reduction contributions of up to $3,050 into their respective Health FSA. This is true even if both spouses work for the same employer.