2018 ACA Safe Harbor Percentages Will Decrease

July 10th, 2017

As the Hays Research and Compliance team plans ahead, we want to inform our clients that there will be safe harbor changes to consider for 2018.

The affordability percentage, under the Affordable Care Act (ACA), for 2018 will be 9.56%, a decrease from the 2017 safe harbor percentage of 9.69 %.

Overview

On May 5, 2017, the Internal Revenue Service (IRS) issued Revenue Procedure 2017-36 to index the contribution percentages in 2018 for purposes of determining the affordability of an employer’s plan under the Affordable Care Act (ACA).

For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

  • 9.56 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
  • 8.05 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance).

Affordability, as used for compliance with the employer mandate under the Affordable Care Act (ACA), relates to the maximum amount an individual must pay for single-only coverage relative to that person’s household income without triggering a penalty for the employer.  Employers may use any one of the “safe harbors” for affordability (W-2, hourly rate-of-pay or the federal poverty line) to set single-only premium contributions that are deemed affordable under the ACA.

For example, an employer can set the amount an employee pays for single-only coverage based upon 9.56% of the federal poverty line and that offer of coverage will be deemed affordable for purposes of compliance with the ACA.

Why are the Safe Harbor Percentages decreasing? 

The 2018 percentage decrease is due to the projected rate of premium growth as it relates to the projected rate of personal income growth.

Issues to Consider for 2018 Renewals:

2018 ACA Maximum Out-Of-Pocket Expenses (non-grandfathered plans)

  • $7,350 for self-only coverage
  • $14,700 for family coverage

2018 HSA & HDHP Design Maximums

  • HDHP minimum annual deductibles:
    • $1,350 for self-only coverage
    • $2,700 for family coverage
  • Out of pocket maximums:
    • $6,650 for self-only coverage
    • $13,300 for family coverage
  • Maximum annual HSA contributions:
    • $3,450 for self-only coverage
    • $6,900 for family coverage
    • Catch-up contribution (Age 55 and older by the end of the tax year) $1,000

Note: DOL, HHS and IRS guidance requires group health plans to embed an individual out-of-pocket maximum in the plan’s family coverage when the family out-of-pocket maximum exceeds the ACA’s out-of-pocket maximum for self-only coverage.

Action Steps

These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2018. This is the first time since these rules were implemented that the affordability contribution percentages have been reduced. As a result, some employers may need to reduce their employee contributions for 2018 to meet the adjusted percentage.

If you have any questions, please contact your local Hays Consultant.

By: Ben Graves, J.D., Director of Research and Compliance at Hays Companies.