An Overview: Affordable Care Act (ACA) Changes for 2020
Since 2010, the Affordable Care Act (ACA) has changed group health plans. Through the past nine years, reforms became effective which changes plan designs, increased wellness program incentives, and shared employer responsibility penalties. Entering its 10th year of enactment, there are more changes on the horizon, such as increased dollar limits, which will affect employers that sponsor group health plans.
To ensure understanding and compliance, employers should review the changes and activate a strategy to ensure compliance. To assist employers, our BenefitsQuarterback team created an ACA compliance checklist for 2020 and this overview to highlight the critical points of the upcoming changes and what you should do.
As an overview, the following percentages and dollar amounts have changed for 2020:
- Cost-sharing limits
- Coverage affordability percentages
- Maximum penalties for ACA reporting violations
- Dollar amounts for calculating employer shared responsibility penalties
- Health flexible spending account (FSA) salary contribution limits
Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health plans are subject to limits on cost-sharing for essential health benefits (EHB). The ACA’s overall annual limit on cost-sharing (also known as an out-of-pocket maximum) applies for all non-grandfathered group health plans, whether insured or self-insured.
Under the ACA, a health plan’s out-of-pocket maximum for EHB may not exceed $8,150 for self-only coverage and $16,300 for family coverage, effective for plan years beginning on or after Jan. 1, 2020.
What to do: Check your plan’s cost-sharing limits. Understand if your plans meet the “grandfathered” requirements and review the plan’s current limits and adjust as needed.
Coverage Affordability Percentages
Under the ACA, an applicable large employer’s (ALE’s) health coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5% of the employee’s household income for the taxable year (as adjusted each year). The adjusted percentage is 9.78% for 2020.
“Household income” is defined as the modified adjusted gross income of the employee and any members of the employee’s family. Because an employer generally will not know an employee’s household income, the IRS provided three affordability safe harbors that ALEs may use to determine affordability based on information that is available to them. These safe harbors allow an ALE to measure affordability based on the employee’s Form W-2 wages, the employee’s rate of pay or the federal poverty level for a single individual. ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentage
What to do: Evaluate the employee’s cost of health coverage and household income (using a safe harbor if needed) to determine if the cost meets the adjusted percentage requirement.
Maximum Penalties for ACA Reporting Violations
An ALE is only liable for a penalty under the employer shared responsibility rules if at least one full-time employee receives a subsidy for coverage purchased through an Exchange. Employees who are offered health coverage that is affordable and provides MV are generally not eligible for these Exchange subsidies. Depending on the circumstances, one of two penalties may apply under the employer shared responsibility rules—the 4980H(a) penalty or the 4980H(b) penalty.
Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” full-time employees (and dependents) and any one of its full-time employees receives a premium tax credit or cost-sharing reduction toward his or her Exchange plan. An ALE will satisfy the requirement to offer minimum essential coverage to “substantially all” of its full-time employees and their dependents if it offers coverage to at least 95%—or fails to offer coverage to no more than 5% (or, if greater, five)—of its full-time employees (and dependents).
Under Section 4980H(b), ALEs that do offer coverage to substantially all full-time employees (and dependents) may still be subject to penalties if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide minimum value. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.
What to do: Review company health plans based on affordability and minimum value to assess if penalties will apply and calculate according to the adjusted percentages.
Dollar Amounts for Calculating Employer Shared Responsibility Penalties
Under the ACA’s employer shared responsibility rules, applicable large employers (ALEs) are required to offer affordable, minimum value (MV) health coverage to their full-time employees (and dependent children) or pay a penalty. These employer-shared responsibility requirements are also known as the “employer mandate” or “pay or play” rules. An ALE will be subject to penalties if one or more full-time employees receive a subsidy for purchasing health coverage through an Exchange. An individual may be eligible for an Exchange subsidy either because the ALE does not offer coverage to that individual or offers coverage that is “unaffordable” or does not provide “minimum value.”
What to do: Assess the possible liability for an employer shared responsibility penalty for 2020 to understand if your company is at risk.
Health Flexible Spending Account (FSA) Salary Contribution Limits
For plan years beginning on or after Jan. 1, 2013, an employee’s annual pre-tax salary reduction contributions to a health FSA must be limited to $2,500 (as adjusted).
On Nov. 6, 2019, the IRS released Revenue Procedure 2019-44, which increased the FSA dollar limit on employee salary reduction contributions to $2,750 for taxable years beginning in 2020. The limit does not apply to non-elective employer contributions to the health FSA (such as matching contributions or flex credits), though employer contributions that employees may elect to receive in cash or as a taxable benefit will count toward the limit.
Other ACA requirements may impact or limit the total amount that may be contributed to a health FSA, but non-elective employer contributions generally do not reduce the health FSA limit for the employee. Additionally, the health FSA limit does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care or adoption care assistance are not affected by the health FSA limit.
What to do: Review and update your health FSA’s contribution limit.
Evaluate the Company’s Health Plans, Communicate, and Report
In summary, the most important thing to do to prepare for 2020 ACA changes is to evaluate current health plans and compare them against the updated requirements. Make adjustments as needed and then create a compliant summary of benefits and coverage (SBC) available to applicants and enrollees to help them understand coverage and make coverage decisions. Communicate the changes internally and then prepare for health plan reporting. To report, determine what is required and applicable to the company’s health plans (which forms are necessary), complete the required forms – electronically if requirements are met, and submit by the deadline.
For additional information and guidance, review our ACA 2020 Compliance Checklist. While the 2020 ACA changes will be important to review and ensure compliance, it is also beneficial to review your entire benefits packages and clearly communicate any changes that will affect employees. Learn more about how our team can provide a holistic view and help you to address your unique challenges by visiting our website.