From the desk of Michelle Sheppard - Updated Affordability Percentage for ALEs for 2021
(Posted on 11/19/20)
As we start working on a majority of our 1/1 renewals, I wanted to send out a friendly reminder that the IRS has set new affordability percentages for plan years beginning in calendar year 2021. Applicable large employers (ALEs) use the affordability percentage to help make sure that their employer-sponsored coverage is deemed “affordable” by the ACA under the Employer Shared Responsibility Provisions.
The 2021 percentage is an increase from the 2020 number, rising from 9.78% to 9.83% in 2021. It’s important to speak to those employers before renewal to review contribution models in order to make sure that the group’s offer of coverage is still in compliance with the new 2021 numbers. As a reminder, employer-sponsored coverage is generally considered affordable as long as the single rate contribution that meets minimum value for the lowest-cost plan does not exceed the affordability percentage (9.83% in 202) of an employee’s household income. While it can be difficult to know what an employee’s household income is, the IRS provides three safe harbors that employers can use to determine affordability where the household income is unknown. Additional requirements under the Employer Shared Responsibility Provisions note that coverage must also be offered at least 95% of their full-time employee workforce and dependent children.
The 2021 percentage is an increase from the 2020 number, rising from 9.78% to 9.83% in 2021. It’s important to speak to those employers before renewal to review contribution models in order to make sure that the group’s offer of coverage is still in compliance with the new 2021 numbers. As a reminder, employer-sponsored coverage is generally considered affordable as long as the single rate contribution that meets minimum value for the lowest-cost plan does not exceed the affordability percentage (9.83% in 202) of an employee’s household income. While it can be difficult to know what an employee’s household income is, the IRS provides three safe harbors that employers can use to determine affordability where the household income is unknown. Additional requirements under the Employer Shared Responsibility Provisions note that coverage must also be offered at least 95% of their full-time employee workforce and dependent children.