It looks like employers will soon have some clarity in how to calculate if their health plans are “affordable” and make sure they won’t be penalized under the reform law’s “pay or play” mandate.
The Internal Revenue Service will develop new, clearer rules for employers on how they can determine if their plans pass the reform law’s “affordability test,” according to a report by BusinessInsurance.com.
Currently, for a plan to pass the test an employee’s cost for single coverage cannot exceed 9.5% of his/her income. For each employee whose health premiums exceed that threshold, the employer must pay a $3,000 penalty.
The problem: When workers have more than one source of income, it is difficult for employers to calculate total income for the purposes of the affordability test.
The new rules are expected to allow employers to determine affordability based on an employee’s W-2 wages — and not total income, simplifying the calculation.
So to pass the test, employers will just have to make sure the cost for single coverage doesn’t exceed 9.5% of an employee’s W-2 wages.
The affordability test will only be applied to single coverage. Employers will be able to charge more for family coverage.
Info: View the Business Insurance Report “IRS to issue new health care reform law affordability test,” 8/12/11, click here.
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