What Is Affordable Coverage?

For organizations that are determined to be “large” employers under PPACA, it will be necessary to determine if the coverage being offered is “affordable.” Coverage is affordable if the required employee contribution does not exceed 9.5% of their annual household income. The coverage to which this rule applies is the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value. The employer can charge more for spouse or dependent coverage and IRS regulations offer a number of methods for determining the employee’s household income. When coverage is not affordable and an employee obtains coverage from an exchange and receives a premium tax credit or cost sharing benefit, the employer will be liable for an assessable payment for that employee.

An employer is “large” if, on average, at least 50 full-time employees were employed on business days in the preceding calendar year. Parent-subsidiary and brother-sister controlled group rules within the tax code apply in making this determination, meaning that all subsidiaries that are at least 80% owned directly or indirectly by the parent corporation will be treated as a single employer. In addition, two part-time employees who work an average of at least 15 hours a week will be considered a single full-time employee for purposes of determining the number of full-time employees.

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