2023 Affordability Standards

In Revenue Procedure 2022-34, the Internal Revenue Service released certain affordability standards for 2023 as they apply to the Affordable Care Act (ACA), as follows:

Affordability Standard – Employer Shared Responsibility Mandate

Coverage under an employer-sponsored plan is deemed affordable to a particular employee if the employee's required contribution to the plan does not exceed 9.12% (plan years beginning in 2023, down from 9.61% for 2022) of the employee's household income for the taxable year, based on the cost of single coverage in the employer’s least expensive plan.

This is a significant reduction in the affordability calculation, employers subject to employer shared responsibility will want to use extreme caution in determining whether their plans are affordable.

As background, employers subject to the ACA’s employer shared responsibility mandate who fail to offer minimum essential coverage to their full-time employees or fail to offer adequate and affordable coverage may be subject to an excise tax if at least one of its employees qualifies for premium assistance through a marketplace. If an employer does not know an individual’s household earnings, it can use one of three safe harbors for purposes of determining affordability; they are:

• A Form W-2 determination in which the employer’s lowest cost self-only coverage providing minimum value does not exceed 9.12% (for 2023 plan year; 9.61% in 2022), of the employee’s Form W-2 wages (Box 1) for the calendar year.
• A rate of pay method in which the minimum value cannot exceed 9.12% (for 2023 plan year; 9.61% in 2022), of an amount equal to 130 hours, multiplied by the employee’s hourly rate of pay as of the first day of the coverage period. For salaried employees, the monthly salary is used instead of the 130 hour standard. An employer can apply this method to hourly employees if they experience a reduction in pay during the year; however, this methodology cannot be used for commissioned sales people.
• A Federal poverty line (FPL) standard in which cost of single coverage does not exceed 9.12% (for 2023 plan year; 9.61% in 2022) of the individual federal poverty line rate for the applicable calendar year, divided by twelve. While we do not know the FPL guidelines for 2023, we do know that a plan can use the poverty guideline in effect six months prior to plan’s effective date, hence for a 2023 calendar year plan the affordability limit is $103.28.

Premium Tax Credit

The following contribution percentages are used to determine whether an individual is eligible for a premium tax credit for health coverage purchased through the marketplace for the 2023 tax year:

Note: At the time of this writing the Senate has passed, and the House is expected to take up H.R. 5376 commonly known as the Inflation Reduction Act of 2022.Among its provision is an extension for three years of the premium tax credit provisions of the American Rescue Plan Act (ARPA).

In summary, ARPA provides a temporary increase in the premium tax credit available to certain individuals obtaining health coverage through the marketplace. Individuals exceeding 400% of poverty would be entitled to premium assistance if the cost of health care exceeds 8.5% of his/her income.

This extension would apply through December 31, 2025.If this extension becomes law, employers will want to monitor their affordability standards as more employees could become eligible for premium assistance.

Coverage of Preventive Services (FAQ Part 54)

Reproductive health services have certainly been front and center this summer. Several weeks ago, the Secretaries of Labor, Health and Human Services (HHS), and Treasury (collectively Departments) met with health insurers to discuss compliance with the Affordable Care Act’s first-dollar coverage of preventive services, specifically as it relates to women’s health services.

On July 28, 2022, the tri-governing agencies issued FAQ guidance further reiterating their commitment to ensure compliance with the ACA’s preventive services mandate. Partly in response to numerous questions and complaints that individuals are not properly receiving first-dollar coverage of these services.

The FAQ guidance affirms previous guidance requiring non-grandfathered plans to cover at least one form of contraception in each of the 18 categories of contraception as identified by the FDA, see the FDA birth control guide for additional information. This includes items or services necessary for the delivery of the treatment such as anesthesia for a contraceptive method that requires it.

The guidance affirms a plan must cover an item or service deemed medically appropriate by the individual’s health care provider even if not otherwise included in the plan’s list of covered services.

The guidance explains how reasonable medical management techniques can be used for items and services not included on the plan’s list of first dollar preventive services. Further, the guidance illustrates what would not be deemed reasonable.

If a plan utilizes medical management techniques within a specified category of contraception, the use of those techniques will not be considered reasonable unless the plan has an easily accessible, transparent, and sufficiently expedient exception process that is not unduly burdensome on the individual or their provider to obtain coverage for the service or product determined to be medically necessary for the individual as determined by the individual’s provider.

Examples of unreasonable medical management techniques include situations like the following:

• Denying coverage for all or particular brand name contraceptives, even after the individual’s provider determines and communicates to the plan or issuer that a particular service or FDA-approved, cleared, or granted contraceptive product is medically necessary with respect to that individual;
• Requiring individuals to fail first using numerous other services or FDA-approved, cleared, or granted contraceptive products within the same category of contraception before the plan or issuer will approve coverage for the service or FDA-approved, cleared, or granted contraceptive product that is medically necessary for the individual, as determined by the individual’s health care provider;
• Requiring individuals to fail first using other services or FDA-approved, cleared, or granted contraceptive products in other contraceptive categories before the plan or issuer will approve coverage for a service or FDA-approved, cleared, or granted contraceptive product in a particular contraceptive category; and
• Imposing an age limit on contraceptive coverage instead of providing these benefits to all individuals with reproductive capacity.

The Departments will consider an exceptions process to be easily accessible if plan documentation includes relevant information regarding the exceptions process under the plan or coverage, including how to access the exceptions process without initiating an appeal pursuant to the plan’s or issuer’s internal claims and appeals procedures, the types of information the plan or issuer requires as part of a request for an exception, and contact information for a representative of the plan or issuer who can answer questions related to the exceptions process.

The Departments strongly encourage plans to develop and utilize a standard form and instructions for the exceptions process.

A plan utilizing a reasonable medical management technique cannot require an individual to appeal the adverse determination using the plans’ internal claims and appeals process to obtain an exception as this would be unduly burdensome on the individual or provider.

With the heighten focus on reproductive health services and with open enrollment for many health plans just around the corner, it is a good time to review your health plan to ensure compliance.

Also, important to remember, the IRC Section 4980D $100 a day/per participant penalty can be assessed for failure to comply with the market provisions of the ACA including the above women’s preventive services.

About the Author

Karen McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. 

Ms. McLeese is based in the CBIZ Kansas City office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.