On April 12, 2016, the Internal Revenue Service (IRS) issued Revenue Procedure 2016-24 to index the contribution percentages in 2017 for purposes of determining the affordability of an employer’s plan under the Affordable Care Act (ACA).

For plan years beginning in 2017, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

• 9.69% of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
• 8.16% of the employee’s household income for the year, for purposes of an exemption from the individual mandate.

Affordability Determination
The affordability of health coverage is a key point in determining whether an Applicable Large Employer (ALE) will be subject to a penalty.

For 2014, employer-sponsored coverage was considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage did not exceed 9.5% of the employee’s household income for the tax year (9.56% for 2015, and 9.66% for 2016).

For 2017, Revenue Procedure 2016-24 increases the affordability contribution percentage to 9.69%.

The affordability test applies only to the portion of the annual premium for self-only coverage, and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Affordability Safe Harbors
Because an employer generally will not know an employee’s household income, the IRS created three affordability safe harbors that measure affordability based on Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual.

These affordability safe harbors are all optional. An employer may use one or more of the safe harbors for all its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category.

As written in the employer shared responsibility final rules, the affordability safe harbors specifically use 9.5% as the required contribution. However, on Dec. 16, 2015, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages for 2015 and future years.

Contact your NEEBCo representative with any questions you may have.

ACAs Affordability Contribution Percentage Increased for 2017