Shared Responsibility for Employers (3)



What Constitutes Affordable, Minimum Value Coverage

Avoiding a shared responsibility assessment takes more than offering minimum essential coverage. An employer may still be subject to an assessment if the coverage that it does offer is either unaffordable or does not offer minimum value.

Minimum Essential Coverage

Minimum essential coverage includes the following:

More information about minimum essential coverage is provided in the IRS section 5000A questions and answers.

Affordable Coverage

Coverage is affordable if the employee’s required contribution for self-only coverage does not exceed the affordability percentage (established by the IRS) of the employee’s household income. Because it may be difficult or impossible for an employer to determine an employee’s household income, the rules offer three affordability safe harbors.

Safe Harbor 1: Form W-2 Wages
The first is based on wages reported in Box 1 of the employee’s Form W-2 for the current year. For example, this means that affordability for 2014 is based on 2014 wages. Although the determination of whether an employer actually satisfied the safe harbor is made after the end of the calendar year, an employer could also use the safe harbor prospectively, at the beginning of the year, to set the employee contribution at a level so that the employee contribution for each employee would not exceed the contribution limit for that employee’s Form W–2 wages for that year (for example, by automatically deducting the contribution limit, or a lower percentage, from an employee’s Form W–2 wages for each pay period).

For an employee who was not a full-time employee for the entire calendar year, the Form W–2 safe harbor is applied by adjusting the employee’s Form W–2 wages to reflect the period when the employee was offered coverage, and then comparing those adjusted wages to the employee share of the premium during that period. Specifically, the amount of the employee’s compensation for purposes of the safe harbor is determined by multiplying the wages for the calendar year by a fraction equal to the months for which coverage was offered to the employee over the months the employee was employed. That adjusted wage amount is then compared to the employee share of the premium for the months that coverage was offered to determine whether the Form W–2 safe harbor was satisfied for that employee.

Safe Harbor 2: Rate of Pay
The second safe harbor method uses the rate of pay method. An employer satisfies the rate of pay safe harbor with respect to an employee for a calendar month if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed the affordability percentage of an amount equal to 130 hours multiplied by the employee’s hourly rate of pay as of the first day of the coverage period. For salaried employees, monthly salary is used and an employer may use any reasonable method for converting payroll periods to monthly salary.

Safe Harbor 3: Poverty Line
Finally, an employer’s coverage will be considered affordable if the employee’s required contribution for the calendar month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed the affordability percentage of a monthly amount determined as the Federal poverty line for a single individual for the applicable plan year, divided by 12. The employer may select any of the poverty guidelines in effect within six months before the first day of the plan year.

An employer does not have to use the same safe harbor for all employees but it must be consistent in its use within a “reasonable category” of employees. Reasonable categories generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria. However, an enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable category.

Minimum Value

Coverage meets the minimum value (MV) requirement if the plan’s share of total allowed costs is at least 60%.   In addition, the plan must provide substantial coverage of both ‘inpatient hospital services’ and ‘physician services.’ In the case of an employer that only has insured plans, the employer may be able to rely on the insurer to determine the plan’s value. However, if an employer with insured major medical coverage also has a self-insured HRA or makes HSA contributions, those will need to be factored in to the minimum value calculations. Self-insured employers will need to make their own determinations.

The HHS regulations describe several options for determining MV:

MV Calculator: Plans may use the MV calculator provided by the government at:

Safe Harbors: Plans may determine MV through a safe harbor established by HHS and IRS. Certain safe harbor plan designs that satisfy the MV requirement will be specified in additional guidance. The IRS has proposed three plan designs1  as safe harbors if the plans cover all of the benefits included in the MV calculator.

Actuarial Certification: Plans with nonstandard features that cannot determine MV using the MV Calculator or a safe harbor can determine MV through an actuarial certification from a member of the American Academy of Actuaries after performing an accepted analysis in accordance with generally accepted actuarial principles and methodologies.

Metal Coverage: Plans in the small group market will satisfy MV if they meet the requirements for any of the levels of metal coverage (bronze, silver, gold, or platinum).

Effect of Arrangements that Reduce Cost-Sharing on Minimum Value and Affordability HSAs
Amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for purposes of MV and are treated as amounts available for first dollar coverage.  Employer contributions to an HSA do not affect affordability.

Amounts newly made available under an HRA can reduce an employee’s required contribution and count towards providing minimum value depending on how funds from the HRA may be used.

if an employee may use the contributions only to reduce cost-sharing for covered medical expenses.

Additionally, an HRA will count towards affordability or minimum value only if the HRA would have been integrated with eligible employer-sponsored coverage had the employee enrolled in the primary plan. (Note that while an HRA offered by one employer may be considered integrated with the health plan of another employer, an HRA cannot be counted for purposes of determining affordability or minimum value unless the HRA and the primary eligible employer-sponsored coverage are offered by the same employer.)

Whether employer contributions to an HRA count towards the affordability or minimum value of the employer’s plan, they will count only to the extent the amount of the annual contribution is required under the terms of the plan or is otherwise determinable within a reasonable time before the employee must decide whether to enroll.

Individual Coverage HRA: Available in 2020, ICHRAs reimburse an employee’s premium for individual market insurance (and/or pays other medical expenses) up to an amount determined by the employer.

Wellness Programs
Cost-sharing reductions incident to wellness programs are generally not taken into account in determining minimum value; however, for nondiscriminatory wellness programs designed to prevent or reduce tobacco use, MV may be calculated assuming that every eligible individual satisfies the terms of the program relating to prevention or reduction of tobacco use.

Likewise, the affordability of an employer-sponsored plan is determined by assuming that each employee fails to satisfy the requirements of a wellness program, except the requirements of a nondiscriminatory wellness program related to tobacco use, which are considered to have been earned. Thus, the affordability of a plan that charges a higher initial premium for tobacco users will be determined based on the premium that is charged to non-tobacco users, or tobacco users who complete the related wellness program, such as attending smoking cessation classes.

Cafeteria Plans
For purposes of determining the affordability of coverage, the required contribution is reduced by any contributions made by an employer under a section 125 cafeteria plan that (1) may not be taken as a taxable benefit, (2) may be used to pay for minimum essential coverage, and (3) may be used only to pay for medical care.

See the Chart below.

Application of Employer Contributions

Affordability Minimum Value
HSA No Yes
HRA to Reduce Cost Sharing Only No Yes
HRA to Pay Premiums Only or to Pay Premiums and Reduce Cost Sharing Yes No
Wellness Program Participation Cost Sharing Incentive No No
Wellness Program Participation Premium Incentive No No
Smoking Cessation Cost Sharing Incentive Yes Yes
Smoking Cessation Premium Incentive Yes Yes


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Assessment for Failure to Offer Affordable Coverage that Provides Minimum Value

If a large employer offers all of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, but nonetheless one or more full-time employees have been certified for the payment of an applicable premium tax credit or cost-sharing reduction, the employer may be liable for a penalty based on the number of its full-time employees receiving an the credit or reduction.

This may occur because:

  1. The coverage under the plan is unaffordable;
  2. The coverage under the plan does not provide minimum value; or
  3. The employer offers coverage to at least 95 percent (or, if greater, five) but less than 100 percent of its full-time employees (and their dependents) and one or more of those employees who are not offered coverage receive a premium tax credit or cost sharing reduction.

Assessments are made on a monthly basis. The amount of the assessment is the number of employees who receive a tax credit or cost-sharing multiplied by the applicable payment amount. For example, in 2014, the monthly applicable payment was 1/12 of $3000 and a statutory inflation adjustment is made, as appropriate, for years thereafter.

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Employer Exchange Subsidy Notices

ACA requires all public Exchanges to notify employers when an employee is receiving a subsidy (tax credits and cost-sharing reductions) for individual health insurance purchased through an Exchange and to provide an opportunity for employers to appeal.  However, just because the employer receives a notice, it does not mean the employer will actually owe a penalty payment.  The employer has a right, but is not required, to appeal when they feel an employee should not be receiving a subsidy because the employer offers minimum value, affordable coverage.

Appeal Form and Process

Each state Exchange is allowed to set up its own process and procedures. Information about how to file an appeal is usually included in the notice, but it may be necessary to check with the applicable Exchange to find out exactly how to handle the appeals process. The particulars of the process, however, are managed by each Exchange separately.

The form being used by federally facilitated Exchanges may be found here.


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[1] According to IRS regulations proposed on May 3, 2013, plan designs meeting the following specifications are safe harbors for determining MV if the plans cover all of the benefits included in the MV Calculator:

(1) A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost-sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing;

(2) A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; and

(3) A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost-sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs.

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