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:
Household income relative to the Federal Poverty Level
It’s hard to believe that another Health Insurance Marketplace (Marketplace) open enrollment period is quickly
approaching. Here are some important dates to remember.
It’s hard to believe that another Health Insurance Marketplace (Marketplace) open enrollment period is quickly approaching. The federally facilitated Marketplace will have an open enrollment period that starts on November 1, 2023, and it ends on January 15, 2024.
During this time, individuals and families may enroll in an individual health insurance plan or make changes to existing coverage without a qualifying event.
Here are some important dates to remember:
November 1, 2023
Open enrollment starts for health insurance coverage for the 2024 plan year. November 1st is the first day individuals and families can enroll in, re-enroll in, or change health insurance plans through the Marketplace.
December 15, 2023
This is the last day to enroll in or change plans with a January 1, 2024 effective date.
January 1, 2024
Coverage starts for those who enroll in or change plans by December 15, 2023.
January 15, 2024
The open enrollment period ends on this date. January 15th is the last day to enroll in or change health insurance plans for 2024. After this date, you can only enroll in or change plans if you qualify for a special enrollment period.
February 1, 2024
Coverage starts for those who enroll in or change plans between December 16, 2023 and January 15, 2024.
Individuals and families who enroll in Marketplace coverage will need to be prepared to provide the appropriate information on the application. The Marketplace has prepared a checklist to help individuals and families prepare for the application process.
It should be noted that some of the dates above vary for states who operate their own Marketplace. For example, the state of California will have an open enrollment period that runs from November 1, 2023, and it ends on January 31, 2024. This is sixteen days longer that the open enrollment period on the federally facilitated Marketplace.
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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.
Employers often wonder if they can pay or reimburse employees for Medicare premiums if they waive coverage
under the employer-sponsored group health plan. This may drive down the overall cost to the employer, and
it may even be in the best interest of some Medicare-eligible participants; however, this type of action is
generally prohibited under various laws.
Employers often wonder if they can pay or reimburse employees for Medicare premiums if they waive coverage under the employer-sponsored group health plan. This may drive down the overall cost to the employer, and it may even be in the best interest of some Medicare-eligible participants; however, this type of action is generally prohibited under various laws.
Medicare Secondary Payer (MSP) rules have provisions in place which prohibit an employer from taking certain actions which would discourage Medicare-eligible participants from enrolling in an employer-sponsored group health plan (or that would encourage Medicare-eligible participants to drop the employer-sponsored group health plan). This includes a prohibition of offering financial or other benefits as incentives not to enroll in the employer-sponsored group health plan, such as paying for or reimbursing Medicare premiums. This prohibition applies when Medicare is or would be the secondary payer to the employer-sponsored group health plan (generally, employers with 20 or more employees). MSP rules also state that employers with 20 or more employees must provide to any employee or spouse aged 65 or older the same benefits under the same conditions that they provide to employees and spouses under age 65.
Representatives from the U.S. Department of Labor (DOL) have also stated informally that encouraging a Medicare-eligible participant to disenroll in an employer-sponsored group health plan may violate Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA). This provision makes it unlawful to discharge or discriminate against a participant for exercising rights under an employee benefits plan.
There are discriminatory concerns with other laws as well. The Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) provide protections to employees who are age 40 or older or who have disabilities. Employers are prohibited from discriminating against an individual with respect to employee benefits based on their age or disability status. Since individuals can only qualify for Medicare based on their age (65) or receiving a disability determination, discrimination concerns with the ADEA and ADA may become present when employers encourage Medicare-eligible participants to waive coverage under an employer-sponsored group health plan.
The Health Insurance Portability and Accountability Act (HIPAA) also includes some non-discrimination rules. Employers are prohibited from discriminating against employees based on health status, medical conditions, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability. If the goal of the employer is to get Medicare-eligible participants off the group health plan because of actual or perceived bad risk to the employer-sponsored group health plan, then there is a likely violation of the HIPAA non-discrimination rules.
So, when can employers pay for or reimburse Medicare premiums for employees?
Small Employers (under 20 employees)
Small employers with fewer than 20 employees may reimburse employees for Medicare premiums, but the employees must be offered a group health plan with minimum value. Employees don’t have to enroll in the group health plan, but one must be offered to them.
Small Employers (under 50 employees)
Small employers who don’t offer a group health plan to any of its employees may establish a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The QSEHRA may reimburse Medicare premiums, among other things.
Any Size Employer
Employers of any size may establish an Individual Coverage Health Reimbursement Arrangement (ICHRA). ICHRAs allow for the reimbursement of individual major medical and Medicare premiums, among other things. Employers are prohibited from offering the same class of employees the choice between a group health plan and an ICHRA; however, employers may offer one class of employees (e.g., full-time employees) a group health plan and another class of employees (e.g., part-time employees) an ICHRA. It should be noted that Medicare/Non-Medicare status are not permitted classes of employees. An employer couldn’t carve out just their Medicare employee population into an ICHRA.
Employers of any size may also reimburse retirees for their Medicare premiums. This would generally be done through a Retiree Health Reimbursement Arrangement (Retiree HRA).
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Each year employers must provide a written notice to Medicare-eligible employees who are covered
under their group health plan. The notice must include information about the creditable coverage status of the
prescription drug benefit. In other words, the notice tells employees if the prescription drug benefit on the
group health plan is at least as good as the standard Medicare Part D plan.
Each year employers must provide a written notice to Medicare-eligible employees who are covered under their group health plan. The notice must include information about the creditable coverage status of the prescription drug benefit. In other words, the notice tells employees if the prescription drug benefit on the group health plan is at least as good as the standard Medicare Part D plan.
Anyone who is eligible for Medicare but delays enrollment in a Part D plan is subject to a late enrollment penalty unless they have creditable coverage elsewhere. The late enrollment penalty is 1% of the base beneficiary premium for every full month a Medicare-eligible person is without creditable coverage and forgoes enrollment in Part D. The notice provided to Medicare-eligible employees helps them understand if they may be subject to a late enrollment penalty if they delay enrollment in Part D.
One of two notices must be provided to Medicare-eligible employees. A creditable coverage notice should be provided when the drug benefit is at least as good as the standard Medicare Part D plan. A non-creditable coverage notice should be provided when the drug benefit is not as good as the standard Part D plan. Most prescription drug benefits included under a group health plan are creditable, but CMS has provided a Simplified Determination document to help employers figure out the creditable coverage status in the event that’s unknown.
The notice must be distributed prior to October 15th (meaning it must be distributed by October 14th) which is when the Medicare Advantage and Part D annual enrollment period begins. The annual enrollment period will run through December 7th. The notice must also be distributed at other times, such as when creditable coverage status changes or when a Medicare-eligible employee first joins the plan.
Additionally, the notice should be provided to any covered dependents who are eligible for Medicare, including those who become eligible for Medicare due to a disability. COBRA beneficiaries and covered retirees who are eligible for Medicare should also be provided a notice. As a best practice, employers may want to provide this notice to everyone covered under their group health plan.
Selecting the right health insurance broker is essential, especially with the complex choices available today. A knowledgeable broker can guide you through the health insurance
As companies look for budget-friendly health benefits, many are exploring level funded health insurance as a middle ground between traditional and self-funded plans. Rising healthcare
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.
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.
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.
