Health Care Reform Website

Is Coverage Affordable?

Group health coverage is affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value (MV) does not exceed 9.5% (indexed annually) of the employee’s household income for the taxable year. The indexed percentage is 9.56 for 2015, 9.66 for 2016, 9.69 for 2017, 9.56 for 2018 and 9.86 for 2019.

Information on three safe harbors employers may use to evaluate the affordability of an employee’s coverage is available in our Briefing below.

Flexible Contribution Plans

The Internal Revenue Service (IRS) issued guidance addressing how an employer’s flexible contribution or “flex credits” are treated when determining if coverage is affordable.Under the guidance, an employee’s required contribution for the lowest cost self-only coverage that provides MV will be reduced by the amount of an employer’s “flex credit” only if it is a “health flex contribution.” To be a “health flex contribution,” the following requirements must be met:

  • The employee may not opt to receive the amount as a taxable benefit (e.g., cash);
  • The employee may use the amount to pay for minimum essential coverage (MEC); and
  • The employee may use the amount only to pay for medical care within the meaning of Internal Revenue Code (IRC) section 213.

If the flexible contribution or “flex credits” do not meet these requirements, then they are not “health flex contributions” and will not reduce an employee’s required contribution.More information on flexible contribution plans is available in the Briefings below.

Cash-in-Lieu

The IRS issued proposed regulations that require the amount offered as cash-in-lieu to be included as part of the employee’s required monthly contribution for the cost of coverage.

For example, assume an employer offers its employees coverage under a group health plan through a §125 cafeteria plan. The employee’s required monthly contribution for the lowest cost self-only coverage that provides MV is $100 per month but employees can take $150 as cash-in-lieu of benefits.

For purposes of the Employer Mandate “B” penalty and the related reporting on Line 15 of IRS Form 1095-C, the employee’s required contribution for the group health coverage is $250 per month.

The IRS has not yet finalized these regulations but has stated they continue to examine issues raised by opt-out payments and expect to finalize regulations at a later date. Until final regulations are issued, employers may continue to rely on earlier guidance provided in IRS Notice 2015-87 and the proposed regulations.More information on cash-in-lieu and affordability is available in the Briefings below.

Additional Information

Update on Opt-Out Payments & Affordability
     The IRS has delayed finalizing the proposed regulations addressing opt-out payments and their impact on affordability of coverage under the Employer Mandate.


Proposed Regulations Issued on Opt-Out Payments
     This Briefing outlines proposed regulations issued by the IRS that address how opt-out payments impact affordability of coverage under the Employer Mandate.


New Guidance on Cash-in-Lieu and Affordability Under the Employer Mandate
     The IRS issued guidance addressing how it proposes to treat cash-in-lieu of benefits when determining if coverage is affordable under the Employer Mandate.


Flex Credits and Affordability Under the Employer Mandate
     The IRS issued Notice 2015-87 addressing how employer flex credits are treated when determining if coverage is affordable.


Cash-In-Lieu & Flex Credits – What’s the Impact on Affordability Under IRC §4980H?
     This Briefing discusses the impact cash-in-lieu of benefits or flex credit plans may have on determining whether coverage is affordable under the Employer Mandate.


IRC §4980H Affordability Safe Harbors
     This Briefing describes three safe harbors employers may use to determine if an employee’s group health coverage is affordable.