The IRS has announced 2017 indexing adjustments for two important percentages under health care reform. The first percentage, used to determine whether employer-sponsored health coverage is “affordable” for purposes of employer shared responsibility, will increase to 9.69%. (The statutory threshold of 9.5% was previously indexed to 9.56% for 2015 and 9.66% for 2016 (see our Checkpoint article).) The second percentage, used to determine the amount individuals eligible for premium tax credits must contribute toward the cost of Exchange coverage, will also see small increases. (The actual percentage, ranging from 2.04% to 9.69%, varies across household income bands.)
The IRS announcement includes a reminder that the required contribution percentage used to determine whether individuals are exempt from individual shared responsibility penalties will be 8.16% for 2017. (Individuals are exempt if the amount that they would be required to pay for minimum essential coverage exceeds a particular percentage of actual household income for a taxable year. This percentage, which is calculated by HHS, was announced in March of this year in regulations establishing benefit and payment parameters (see our Checkpoint article).)
EBIA Comment: Adjustments to the affordability percentage will be of interest to applicable large employers and their advisors since failure to offer affordable, minimum value coverage to full-time employees may result in employer shared responsibility penalties. The indexed affordability percentage applies to all provisions under Code §§ 4980H and 6056 that reference the 9.5% statutory standard, including the three Code § 4980H affordability safe harbors (see our Checkpoint article). The Code § 4980H penalty amounts are also indexed, but the indexed amounts have not yet been released for 2017. For more information, see EBIA’s Health Care Reform manual at Sections XXI.B.4 (“Individuals and Employers Eligible for the Exchange: Individual Eligibility Determinations”), XXVIII.E (“Assessable Payment (Penalty Tax) When Inadequate Coverage Offered to Full-Time Employees and Dependents (the “Subsection (b) Penalty”)”), and XXIX.D.1 (“Exemption for No Affordable Coverage”).
Contributing Editors: EBIA Staff.