ACA Affordability Threshold Decreases for 2022

ACA Affordability Threshold Decreases for 2022

The Affordable Care Act (ACA) benchmark for determining the affordability of employer-sponsored health coverage will decrease to 9.61% of an employee’s household income for the 2022 plan year – a small decrease from the 2021 level of 9.83%.

Under the ACA’s employer mandate, applicable large employers (ALEs) – generally those who had 50 or more full-time employees, including full-time equivalents, in the prior calendar year – may be subject to a penalty if they do not offer affordable coverage that provides minimum value (MV) to full-time employees and their dependents.

 

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Affordability Threshold

For plan years beginning in 2022, the IRS has announced that coverage will be considered affordable if the employee’s required contribution for the lowest cost self-only health plan offered is 9.61% or less of his or her household income for the taxable year. The IRS has created three safe harbors that employers may use in place of the employee’s household income to determine affordability: W-2, Rate of Pay, and Federal Poverty Level.

For 2022 plans using the Federal Poverty Level safe harbor to determine affordability, an employee’s premium can’t exceed $103.15 per month (down from $104.52 in 2021). In other words, employers offering a medical plan option in 2022 that costs employees no more than $103.15 per month for employee-only coverage will automatically meet the ACA affordability standard.

 

Employer Mandate Penalties

While the IRS has not released the final penalty amounts yet, experts have projected that for the 2022 tax year, the annualized “part a” penalty will be $2,750 per employee, or $229.17 per month. The annualized “part b” penalty will be $4,120 per employee or $343.33 per month.

Calculating the penalty for failure to offer coverage:

In 2022: $2,750 per full-time employee, excluding the first 30 full-time employees
Before the penalty will apply, at least one full-time employee must enroll in exchange coverage and must receive a premium tax subsidy for that coverage.
Part-time employees are not included in the penalty calculation.

Calculating the penalty for offering coverage that is unaffordable or does not provide minimum value:

- In 2022: $4,120 per full-time employee who receives a premium tax credit for exchange coverage

- Total penalty cannot exceed the amount that the employer would have owed if it had been liable for the failure to offer a penalty

 

Sam Slade is Managing Director, Employee Benefits, at The Hilb Group of New England, where he delivers consulting and brokerage services to local employers. He has extensive experience in all aspects of employee benefits, including underwriting, plan design, communications, compliance, and analytics, with a particular focus on alternative funding and self-insurance. Sam lives in South Kingstown with his wife and three sons.