Affordable Care Act

The Basic Facts

Determining Affordability

Coverage is considered affordable if the employees’ required premium contribution for self-only coverage to the lowest cost plan that offers minimum essential coverage does not exceed 9.5 percent of the employee’s modified adjusted gross household income. Employers may not be able to determine an employee’s gross household income. However, they may use one of three methods (affordability safe harbors) to help them determine if the coverage they are providing employees is affordable:

  • Form W-2 Safe Harbor: Use employee’s Form W-2 wages shown in Box 1. (Annual wages x 9.5 / 12 = max premium amount).
  • Rate of Pay Safe Harbor: Multiply an employee’s hourly rate by 130 to determine monthly wages, or use a salaried employee’s monthly pay. (Hourly rate x 130 x 9.5% = max premium amount).
  • Federal Poverty Line Safe Harbor: Use the federal poverty line for a single individual. (FLN # x 9.5% / 12 = max premium amount).

The Media Services’ Premium Affordability Report is a good tool to use if your on-going employees make the same amount per month on a consistent basis. Otherwise the better approach may be to rely on the rate-of-pay or federal-poverty-level safe harbor(s) to the extent possible, and use the Form W-2 safe harbor as a last resort if the employee contribution is set at a level that is above the other two safe harbors. As a precaution, you can set an employee contribution that is based on the lowest-paid employee who is otherwise eligible for coverage.