By Christy Abend
The good news: A record number of Americans – approximately 31 million – have enrolled in health insurance coverage through options offered by the Affordable Care Act (ACA). What’s more, based on enrollment data from late-2020 and early-2021, all 50 states and the District of Columbia have experienced substantial reductions in the uninsured rate since 2013, the last year before full implementation of the ACA.
One factor driving this unprecedented rise of insured Americans has been attributed to the expansion of consumer eligibility for federal premium tax credits to purchase insurance through the health care exchanges – a provision of the American Rescue Plan Act of 2021. Another factor is the extraordinary number of workers – estimated between 16.2 million and 27 million – who lost employer-sponsored insurance due to pandemic-induced reductions in hours worked or altogether job loss.
And with 2022 health plan cost increases expected to return to pre-pandemic levels, the increased number of ACA-insured Americans, who are still on employers’ payrolls or who are returning to the workforce, means a potential reduction in overall employer-sponsored healthcare costs.
And now, the bad news
There’s always a flip side to every coin; the concerning issue for employers regarding record-high ACA enrollment is the possible financial implication it might pose to them.
Under the ACA, employers are at risk of incurring a penalty (known as Penalty B) when they fail, for whatever reason, to offer affordable health insurance coverage that meets minimum value requirements. In 2022, failure to meet this requirement will result in a $4,120 annual ($343.33/month) penalty per full-time employee who receives a subsidy when purchasing insurance through the Marketplace.
Until 2021, only individuals who earned less than 400 percent of the federal poverty level (FPL) were eligible to receive a subsidy to purchase insurance through the ACA marketplace. The American Rescue Plan Act expands that eligibility by eliminating the FPL income cap for tax years 2021and 2022.
With the income threshold removed, more workers qualify for subsidies, resulting in greater risk of a penalty for employers who fail to offer affordable health coverage. It’s also important to understand that the Build Back Better Act – which, as of February 1 is in the Senate’s hands – could extend the elimination of the income cap to 2025 for people to qualify for subsidies when seeking to buy Marketplace coverage. This would make it more likely that an even greater number of employees will qualify for and afford Marketplace insurance, thereby increasing Penalty B risk exposure for employers.
Equifax is here to help
Healthcare affordability isn’t easy to figure out, which is why the ACA allows employers to use safe harbors when calculating whether or not their offers of insurance coverage are affordable for each employee.
However, keeping up to date on federal and state policies that factor into determining affordability can be the source of plenty of headaches. We’re here to help. If you have questions about healthcare coverage affordability and ways to better track your workforce eligibility contact us to connect with someone on our team.
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.