2022 Affordability Limit Announced

The IRS has announced the 2022 indexed amount of the affordability standard.  For 2022, the affordability index will be 9.61 percent, down from 9.83 percent in 2021.

As background, the Affordable Care Act (ACA) mandates that applicable large employers – those with 50 or more full-time equivalent employees – must provide minimum essential coverage that meets minimum value standards and is affordable to at least 95 percent of its full-time employees (those averaging 30 or more hours per week), or pay an excise tax penalty.  The ACA defines “affordable” as the premium cost share for employee-only coverage not exceeding 9.5 percent (as indexed) of an employee’s household income for the employer’s lowest-cost plan.  Each year, the IRS announces the indexed amount of the 9.5 percent affordability standard for the upcoming year.

Since employers would not know an employee’s household income, they have three safe harbors available under ACA regulations to use in place of this requirement: (1) rate of pay, based on an employee’s hourly rate or monthly salaried rate; (2) W-2, based on an employee’s W-2 Box 1, gross income; and (3) federal poverty line (FPL), based on the annual published FPL for a family of one.

Under the FPL safe harbor, the cost to an eligible full-time employee for employee-only coverage under an employer’s lowest-cost health plan (regardless of the coverage elected) cannot exceed $103.14 per month in 2022.

What can affect the affordability standard?  Any salary reductions allowed under Sections 125, 401(k), 403(b), or 457 reduce W-2 Box 1.  Also, any payment for opting out of medical coverage must be added to the amount of the employee’s cost share of the premium.  Finally, any wellness surcharge must be added to the calculations, and wellness credits must be excluded.

If you have questions about the affordability limit for 2022, call ASR Health Benefits at (616) 957-1751 or (800) 968-2449.