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What you need to know about the ACA employer mandate for 2019

Recently, the IRS issued Revenue Procedure 2018-34, which increases the affordability threshold for the Affordable Care Act (ACA) employer mandate pay or play purposes to 9.86% for plan years beginning in 2019. This is a bit more of a jump than we’ve seen in recent years. These are the rates since 2015:

  • 2015: 9.56%
  • 2016: 9.66%
  • 2017: 9.69%
  • 2018: 9.56%
  • 2019: 9.86%

This latest jump is definitely noteworthy, but what does it all really mean?

The first thing we should mention here is that depending on what happens in the near future in terms of the government offering or regulating health care, all of this may become a moot point really quickly. But for now, the ACA is still intact and operating strongly in many parts of the country. So for the purposes of simplification, we’re going to break this all down as if the ACA is indeed here to stay. One detail that’s important to note here is that all this applies only to businesses with 50 or more employees.

First, it’s important to understand what this percentage actually signifies and how it’s used as a guideline for employers. The percentage most simply breaks down to a measure of affordability. The whole premise of the ACA is that health care be within financial reach of the millions of Americans that need coverage. The percentage is actually used to determine whether or not the coverage offered by the employer is indeed affordable and can be obtained without having to sacrifice too much otherwise.

When determining the affordability of coverage, that number is used as a baseline. Using the newest number for 2019, the employer mandate states that the lowest priced self-only plan offered to full-time employees cannot exceed 9.86% of those employees’ household income. This sets a threshold so that theoretically any full-time employee working in the United States should be able to find adequate health care no matter where he or she works.

When trying to understand the jump for 2019 after operating within a narrower range of fluctuation for the first few years, there are many things that people could suggest to explain the difference. Some may tell you that the allowance for higher cost health care may reflect a necessary raise to cover money lost when the employee mandate to cover insurance was dropped. Others may tell you that it reflects the tax cut that so many people got this year and may cancel itself out depending on where you work and how much you made. Depending on where you turn, there are a number of explanations that will sound plausible and figures that may seem likely to be accurate.

The important thing to most people is the impact that they may feel from day to day. So to help illustrate that we’ll apply the 2018 and 2019 rates to a fictitious example. We’ll say that John Doe makes $100,000 annually in salary and is somehow the lowest paid person at his company. In 2018, his company had to make sure that its lowest price single person plan cost no more than $9,560. In 2019, that company can now has a plan that cost up to $9,860. So from 2018 to 2019, John Doe’s employer could offer a plan that costs over $300 more a year.

In reality, most people make less than half of that. As a result, the average impact of this number changing could mean about $150 a year, or about $12 a month. When you look at it this way, it doesn’t really have a profound impact upon single employees. However, for companies with hundreds or thousands of employees, the small number could translate to big savings when it’s all added up.
In the end, this new affordability percentage could make things easier on many businesses, and for the most part isn’t going to take a huge toll on employees. The only thing left to really wonder about at this point is the fate of the ACA and the future of health care in our country. Once we have that all figured out, we’ll know if these numbers are even going to matter any more.

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