To avoid potential liability under §4980H(b), an applicable large employer must make enough available in the ICHRA for it to be considered “affordable.”
In order for coverage to be affordable, the employee contribution cannot exceed a set percentage (9.78% in 2020) of an employee’s household income (or one of the affordability safe harbors – FPL, rate of pay or Form W-2). The affordability of an ICHRA is tied to the lowest cost silver plan available on the public Exchange. The employee contribution = the amount the employer makes available monthly via the ICHRA subtracted from the premium for the lowest cost silver plan.
The coverage available through a public Exchange will vary by the employee’s location and age. This variation poses an administrative challenge in determining affordability since the plan premium could be different for each employee. To help address this challenge, the proposed rules provide the following guidance:
- Rates by Age – Affordability can be based on the employee’s age on the first day of the plan year, or when the employee is first eligible for the ICHRA, in order to avoid having to make adjustments in accordance with age changes during the plan year.
- Location Safe Harbor – Instead of using the lowest cost plan available where the employee resides, an employer can use the cost of the plan at the employee’s primary site of employment. An employee’s primary site of employment is the location at which the employer reasonably expects the employee to perform services, which may be the employee’s residence if the employee does not have a particular assigned office space or a worksite to which to report.
- Look-Back Month Safe Harbor – An employer with a calendar year plan may use the monthly premium for the lowest cost silver plan for January of the prior calendar year. An employer with a non-calendar year plan year may use the monthly premium for the affordability plan for January of the current calendar year. The agencies have promised to provide employers with access to location-specific lowest cost silver plan premium data on a month-by-month basis.
- Non-Tobacco Rates – As with group health plans, affordability is based on plan premiums applicable to non-tobacco users.
An ICHRA that is affordable will automatically be considered a minimum value offer of coverage for purposes of §4980H(b).