IRS proposes safe harbor for health care plan affordability test

WASHINGTON—A new Internal Revenue Service proposal would make it easier for employers to determine if their health care plans are “affordable” and exempt from a stiff financial penalty mandated by the health care reform law.

Under the law, starting in 2014, employers are liable for an annual $3,000-per-employee penalty for employees whose required health insurance premium contribution for single coverage exceeds 9.5% of family income and the employees are eligible for federal premium subsidies to buy coverage through state insurance exchanges.

Following up on a promise made in August, the IRS on Tuesday asked for public comment on a proposed safe harbor in which coverage would be considered affordable as long as the premium contribution for single coverage did not exceed 9.5% of an employee's W-2 wages.

‘More workable, practical'

“By allowing employers to base their affordability calculations on each employee's W-2 wages (which employers know) instead of each employee's household income (which employers generally would not know), the safe harbor could provide a more workable and practical method for measuring the affordability of an employer's coverage,” the IRS said in Notice 2011-73.

“This will work very well for employers. It is a real positive for employers,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

To qualify for the safe harbor, an employer would have to meet certain requirements, including offering full-time employees the opportunity to enroll in a qualified employer-sponsored plan and that the required employee premium contribution for individual coverage in an employer's lowest-cost plan available to the employee not exceed 9.5% of the employee's W-2 wages.

Determined by employer

Application of the safe harbor would be determined at the end of a calendar year and on an employee-by-employee basis.

“The employer would determine whether it met the proposed affordability safe harbor for 2014 for an employee by looking at that employee’s W-2 wages for 2014 and comparing 9.5% of that amount to the employee’s 2014 premium contribution,” the IRS said.

To view the entire artcile click here.