The Affordable Care Act (ACA) has significantly changed the landscape of healthcare in the United States, especially concerning employer-provided health coverage. A key aspect of the ACA is ensuring that health coverage is affordable for employees. For part-time employees, understanding how the ACA defines affordability and how it applies to them is crucial. This article breaks down the rules around affordable health coverage under the ACA, particularly for part-time workers, and explains the safe harbors employers can use to ensure compliance.
Under the ACA, employer-provided coverage is deemed “affordable” if the employee’s required contribution for the least expensive, minimum-value coverage is no more than 9.5 percent (this percentage is adjusted annually) of the employee’s household income. The “employee required contribution” includes any amount the employee pays towards enrolling in this coverage, whether through salary reduction or other means. This calculation also considers employer arrangements like Health Reimbursement Arrangements (HRAs), wellness incentives, flex credits, and opt-out payments, which can affect the actual cost to the employee.
However, a significant challenge for employers, especially large employers known as Applicable Large Employers (ALEs) under the ACA, is that they generally do not have insight into their employees’ household incomes. To address this, the IRS provides three “affordability safe harbors” that employers can use to determine if their health coverage offerings are considered affordable. These safe harbors are based on information readily available to the employer, such as employee wages or rates of pay, rather than relying on unknown household income figures.
If an ALE’s health coverage offer meets the affordability standard under any of these safe harbors—meaning the employee’s required contribution is no more than 9.5 percent (as adjusted) of the baseline defined by the safe harbor—then the coverage is automatically considered affordable under the employer shared responsibility provisions of the ACA. This is true regardless of whether the coverage would be deemed affordable based on the employee’s actual household income. This distinction is important because the household income test is primarily used to determine an individual’s eligibility for premium tax credits when purchasing coverage through the Health Insurance Marketplace.
The three affordability safe harbors available to employers are:
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The Form W-2 Wages Safe Harbor: This safe harbor generally uses the amount of wages reported to the employee in Box 1 of their Form W-2 as the basis for affordability calculations.
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The Rate of Pay Safe Harbor: This safe harbor is typically based on an employee’s rate of pay at the start of the coverage period. For hourly employees, adjustments are allowed if the rate of pay decreases, but not if it increases.
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The Federal Poverty Line Safe Harbor: This safe harbor considers coverage affordable for a given month if the employee’s required monthly contribution does not exceed 9.5 percent (adjusted annually) of the federal poverty line for a single individual, divided by 12.
Employers have the flexibility to choose which safe harbor, or combination of safe harbors, they wish to use. They can even apply different safe harbors to different categories of employees, provided that these categories are reasonable and the chosen safe harbor is applied consistently within each category. To utilize any of these safe harbors, an ALE must offer at least 95 percent of its full-time employees and their dependents the opportunity to enroll in health coverage that provides minimum value for self-only coverage offered to the employee. If an employer provides multiple health coverage options, the affordability test is always applied to the lowest-cost self-only coverage option that provides minimum value and is available to the employee.
These affordability rules and safe harbors are equally applicable to part-time employees who are classified as full-time employees for the purposes of the ACA’s employer shared responsibility provisions. Under the ACA, a full-time employee is defined as someone who works an average of at least 30 hours per week, or 130 hours per month. Employers need to assess their part-time workforce to determine which part-time employees meet this full-time threshold under the ACA. For those part-time employees who are considered full-time under the ACA, employers must offer affordable, minimum value coverage to avoid potential penalties under the employer shared responsibility rules.
For more detailed information about determining the employee required contribution, including the impact of HRAs, wellness program incentives, flex credits, and opt-out payments, employers and interested individuals can refer to Notice 2015-87 PDF (questions 7-12) and the proposed regulation PDF on the premium tax credit, both provided by the IRS. These resources offer further clarification and examples to help navigate the complexities of ACA affordability for all employees, including those working part-time but considered full-time under ACA guidelines.
In conclusion, understanding the Affordable Care Act’s rules on health coverage affordability is essential for both employers and employees, including part-time workers. By utilizing the provided safe harbors, employers can ensure they are offering affordable coverage as defined by the ACA, while part-time employees can better understand their rights and access to employer-sponsored health insurance under this important legislation.
