Clarification on 9.5% of Employee-Only Coverage
The following is shown on website:
Coverage offered to employees must be considered affordable (can’t cost more than 9.5% of employee household income) and must provide minimum value (must have an average cost sharing of 60%). A broker spike to me and said the law is actually for single plus dependent coverage for lowest paid employee (contribution). Is this mandate for single coverage or parent/child (biological child)? We need to get a clarification in order to check our compliance.
Answer
We are as sure as the final rule from the IRS in front of us that 9.5% applies to employee-only coverage and not dependent or family coverage. However, we could be missing something. Is the broker referring to an older proposed rule?
Still as an employer you do your employees an injustice by offering expensive health plans. After an employer contribution an employee should be paying less than what they would pay based on their income in the Marketplace. Not always possible but it is ideal. Consider offering lower premium higher deductible health options paired with medical savings accounts. It's typically a better deal all around. Not that you can't offer more than one option.
Here is a discussion of the final rule.
Here is the final rule.
"The proposed regulations provided that, for taxable years beginning before January 1, 2015, an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage (the required contribution percentage) does not exceed 9.5% of the taxpayer’s household income. While several comments supported this rule, other comments asserted that the affordability of coverage for related individuals should be based on the portion of the annual premium the employee must pay for family coverage. These final regulations adopt the proposed rule without change. The language of section 36B, through a cross-reference to section 5000A(e)(1)(B), specifies that the affordability test for related individuals is based on the cost of self-only coverage. By contrast, section 5000A, which establishes the shared responsibility payment applicable to individuals for failure to maintain minimum essential coverage, addresses affordability for employees in section 5000A(e)(1)(B) and, separately, for related individuals in section 5000A(e)(1)(C). Thus, proposed regulations under section 5000A, which the Treasury Department is releasing concurrently with these final regulations, provide that, for purposes of applying the affordability exemption from the shared responsibility payment in the case of related individuals, the required contribution is based on the premium the employee would pay for employer-sponsored family coverage." Department of Treasury Final Rule on the Employer mandate and employer health coverage for dependents Federal Register / Vol. 78, No. 22 / Friday, February 1, 2013 / Rules and Regulations
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If employer is charging more than 9.5% of household income do people receive tax credit?
You have to get an exemption from the marketplace, typically requiers the employer filling out an “employer coverage tool” as confirmation. Call the marketplace for direction.
So the final rule, ” that 9.5% applies to employee-only coverage and not dependent or family coverage, ” in reality amounts to discrimination against the other family members getting affordable coverage through the marketplace and employers can mark up family plans.
In layman terms. An employer must offer “affordable” coverage not to exceed 9.5% of the employees total household income for the employee portion only. They must also OFFER dependent coverage, but the employer does not have to contribute toward dependent coverage.
The above also depends on group size.
Is this Gross income or Net income? 9.5% Before or after taxes?
It’s 9.66% for 2017 and its based on your MAGI.
Penalty for non compliance ?
The employer is technically penalized for every employee who uses the marketplace, thus if the employee uses the marketplace because they are exempt because employer coverage is unaffordable, it counts against the employer.
An employer must provide coverage to substantially all (95%) of employees if they have over 50 FTE.
That is the gist. The rest you can read about here in terms of the per employee fee if it kicks in https://obamacarefacts.com/obamacare-employer-mandate/