Clarification 9.5 Rule

[jefflange]

I have a client who just received her Companies Annual Benefit Renewal Notice.
The Company had switched companies this year for their benefits because their current carrier's rate increase was not sustainable.

The question I have is based on " Is the Plan affordable" based on the 9.5% Rule.

The Benefit outlay looks in compliance with the ACA to me but the Affordability portion in her case does not.

She makes $25,000 annually and her share of the health cost is
( $208.69 per pay ( Employee Cost ) @ 26 pay periods a Year ) $208.69 x 26 = $5,425.94
Based on her Salary of 25,000 this amount would exceed the 9.5% rule
( $2,375 ) allowing her to seek benefits on the exchange and maybe get a subsidy which would be dependent on her and her husbands Adjusted Gross Income.

Employee Cost $208.69
Employee Spouse $479.83

Currently her husband is self-employed and he is on her plan as a dependent. She pays a total of $479.83 per pay for Employee & Spouse coverage or $12,475.58 annually but I know we can't use the dependent cost in determining the 9.5% rule.

Am I interpreting her scenario correctly?

Clarification Needed......

 

[dgoldenz]

Need to use household income, not her salary.

 

[jefflange]

That is what I originally thought but then I was informed differently indicating that the affordability compliance issue in determining if a plan was considered affordable for the employee was based on her income? Not household income.
The subsidy issue would be based on the household income?

This is why I posted as I am getting mixed interpretations of the 9.5% Rule.

 

[bluediamond]

Employee Rules and Rights | Affordable Care Act Health Coverage Guide

Whether coverage is adequate and affordable will be determined by the employee’s cost for self-only coverage.

Adequacy will be determined with a minimum value calculator to be provided by the IRS and HHS. Employers can input information about the plan, such as deductibles and co-pays, and find out if coverage is adequate.
Affordability will be determined by whether the coverage offered costs an employee more than 9.5% of their annual household income. Because employers may not know employees’ household incomes, three affordability safe harbors are proposed:


Form W-2: An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of their W-2 wages for that calendar year.
Rate of pay: An employee’s monthly contribution for self-only coverage is affordable if it is no more than 9.5% of their monthly wages (hourly rate of pay × 130 hours, or, for salaried employees, their monthly salary figure).
Federal Poverty Line (FPL): An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of the FPL for a single individual.

Here's another link that explains it a little better.

http://obamacarefacts.com/affordable-employer-sponsored-coverage/

 

[dgoldenz]

Employee Rules and Rights | Affordable Care Act Health Coverage Guide

Whether coverage is adequate and affordable will be determined by the employee’s cost for self-only coverage.

Adequacy will be determined with a minimum value calculator to be provided by the IRS and HHS. Employers can input information about the plan, such as deductibles and co-pays, and find out if coverage is adequate.
Affordability will be determined by whether the coverage offered costs an employee more than 9.5% of their annual household income. Because employers may not know employees’ household incomes, three affordability safe harbors are proposed:


Form W-2: An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of their W-2 wages for that calendar year.
Rate of pay: An employee’s monthly contribution for self-only coverage is affordable if it is no more than 9.5% of their monthly wages (hourly rate of pay × 130 hours, or, for salaried employees, their monthly salary figure).
Federal Poverty Line (FPL): An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of the FPL for a single individual.

Here's another link that explains it a little better.

What is Affordable Coverage Under ObamaCare? - Obamacare Facts

So the employee-only income measurement covers the employer's butt, but if the employee wants a subsidy, it has to be greater than 9.5% of their household income.

 

[jefflange]

This is why it is hard to interpret. At first you would read its based on Household income.
But under further review- Self Only coverage based on minimum value not greater than 9.56 percent of an EMPLOYEES W-2 Taxable ( Box 1 ) Income.

So my question would be based on her W-2 Income the plan in question would be considered unaffordable due to her income being 25,000 and her share of the costs being $5,425.94 ? She could go to the Federal Marketplace and obtain coverage but any subsidy calculation would be based on the Household income?

I can see this being a big problem with Employer penalties in 2016 under the Safe Harbor issue above and W-2 Taxable Income valuation and lower wage earners waiving Group plans and trying to obtain coverage outside the group .

Also when the question on enrollment into the Federal Marketplace asks if she has an Employer Sponsored plan available would she answer Yes or No to that being it would be deemed unaffordable?

Thanks again for clarification

 

[AllenChicago]

That is what I originally thought but then I was informed differently indicating that the affordability compliance issue in determining if a plan was considered affordable for the employee was based on her income? Not household income.
The subsidy issue would be based on the household income?

This is why I posted as I am getting mixed interpretations of the 9.5% Rule.

As of July 13, 2015, the IRS says HOUSEHOLD income.

"An employer-sponsored plan is affordable if the portion of the annual premium you must pay for self-only coverage does not exceed 9.5 percent of your household income (adjusted to 9.56 percent for plan years beginning in 2015"

Source: Questions and Answers on the Premium Tax Credit

 

[jefflange]

Allen, I also thought that this was based on Household income but another agent informed me differently based I'm guessing on the Safe Harbor issue listed below.

So how does the IRS Safe Harbor come into play. See above under the 1st safe harbor .

" Because an employer generally will not know an employee's household income, the IRS created three affordability safe harbors that employers may use to determine affordability based on information that is available to them. For plan years beginning in 2015"

"Employee's required premium co-share for the lowest cost , self-only coverage that provides minimum value is not greater than 9.56 percent of an employee's W-2 taxable ( Box 1) income " play into this if at all?

Is the Safe harbor issue above just for the calculation of the Employer Penalty phase come 2016?

 

[Yagents]

Isn't it fun revisiting this horrendous topic.

Google or search "Family Glitch" on this forum. Or search on the new bill in congress attacking this flaw in the law.

Few employers will offer group, and have it more than 9.5%, and be subject to penalty. If less than 9.5% of employees' only salary, nobody in family gets a tax credit ..........PERIOD.

If cost of family coverage is more than 8% of household income, they can apply for an exemption from not having to pay the penalty, or buy a CAT plan.

Move on to the next client, you won't get the business. Remember, employers are now reporting this stuff to the IRS. Would hate to get it wrong, and have the client be exposed to a HUGE clawback.

 

[dgoldenz]

Isn't it fun revisiting this horrendous topic.

Google or search "Family Glitch" on this forum. Or search on the new bill in congress attacking this flaw in the law.

Few employers will offer group, and have it more than 9.5%, and be subject to penalty. If less than 9.5% of employees' only salary, nobody in family gets a tax credit ..........PERIOD.

If cost of family coverage is more than 8% of household income, they can apply for an exemption from not having to pay the penalty, or buy a CAT plan.

Move on to the next client, you won't get the business. Remember, employers are now reporting this stuff to the IRS. Would hate to get it wrong, and have the client be exposed to a HUGE clawback.

x2, not worth the risk. Something will probably get screwed up.