Employer Mandate

Under Internal Revenue Code section 4980H, an Applicable Large Employer may be subject to a penalty if it does not offer its full-time employees, and their dependents, minimum essential coverage that is affordable and provides minimum value.

Is Coverage Affordable?

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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 and 9.66 for 2016. Information on the three safe harbors employers may use to evaluate the affordability of an employee’s coverage is available in our June 2014 Briefing.

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:

  1. The employee may not opt to receive the amount as a taxable benefit (e.g., cash);
  2. The employee may use the amount to pay for minimum essential coverage (MEC); and
  3. 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 has also stated it intends to issue proposed regulations that will 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.   More information on cash-in-lieu and affordability is available in the Briefings below.

 

Additional Information
Health Care Reform: New Guidance on Cash-in-Lieu and Affordability Under the Employer Mandate
The Internal Revenue Service issued guidance addressing how cash-in-lieu is treated when determining if coverage is affordable under the Employer Mandate.
Health Care Reform: Flex Credits and Affordability Under the Employer Mandate
The Internal Revenue Service issued Notice 2015-87 addressing how employer flex credits are treated when determining if coverage is affordable.
Health Care Reform: 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.
Health Care Reform: IRC §4980H Affordability Safe Harbors
This Briefing describes the three safe harbors employers may use to determine if an employee’s group health coverage is affordable.