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The U.S. Department of Health & Human Services (HHS) has released its updated federal poverty level (FPL) guidance for 2023. The mainland FPL increases in 2023 to $14,580 (the FPL for Alaska will be $18,210, and for Hawaii will be $16,770). Applicable large employers (ALEs) should take note of the new mainland FPL as it could impact future affordability calculations under the Affordable Care Act (ACA).
The ACA requires ALEs to offer group health coverage to full-time employees that is affordable and meets minimum value. ALEs who offer coverage that is deemed unaffordable must pay an employer shared responsibility penalty (ESRP) for any affected individual who elects Marketplace coverage and receives a corresponding premium tax credit.
ACA affordability requires the lowest-tier single-only coverage option to cost no more than a stated percentage (9.12% for 2023) of an employee’s household income. Because an employer typically does not know an employee’s actual household income, ACA rules created three affordability safe harbors an ALE can use to determine affordability.
One of the affordability safe harbors is the FPL safe harbor, which states that coverage is affordable if an individual does not have to pay more than a stated percentage (9.12% for 2023) of the mainland federal poverty level published within six months of the start of the applicable plan year. Non-calendar year plans starting during 2023 can use the newly announced FPL to determine affordability. So, coverage will be deemed affordable if it costs no more than $110.81 monthly. Calendar year plans will not be able to use the new FPL
amount, so coverage is affordable in 2023 if it costs no more than $103.28 per month. Non-calendar year plans starting in 2022 will rely on older FPL figures and will be affordable for the remainder of the current plan year if they charge no more than $108.83 per month.
ALEs are not required to use the FPL safe harbor, and many choose not to since it typically yields a higher employer contribution for coverage. However, any employers who do use the FPL safe harbor should be aware of how the newly announced amounts will impact their plans and planning for the upcoming plan year.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.