What is Affordability and How Affordability is calculated?
Under the Affordable Care Act, large employers (with 50 or more full-time equivalent employees) must offer “Affordable Coverage,” as defined by ACA, that meets the minimum value requirements discussed above, or pay a penalty. Affordable coverage means that the lowest cost plan offered by an employer for self-only coverage (not including spouses and Dependent Children) cannot exceed 9.5% of the employee’s household income. For a single person, this is easy to calculate. See Below. For families, however, employers do not know and cannot ask for household income information. Therefore, the ACA regulations state that employers can use one of three safe harbors to determine if a plan is affordable. Learn About the Three Affordability Safe Harbors here.
The Affordable Care Act says that for an Insurance plan to be affordable it should not cost more than 9.5% of an individuals Annual Gross Income for Minimum Essential Coverage. The calculation is based on the EMPLOYEES WAGE ONLY. Not the entire household income.
You can figure it out on your own. Take your monthly Gross wage income and multiply by .095. [(monthly gross income)x(.095)]= (9.5% of your monthly wages)
If your income fluctuates month to month figure out what your Annual Gross wage income will be, then divide by 12 to get a monthly amount.
If the cost of your employers Insurance Premium is less than 9.5% of your monthly wage than it is deemed “Affordable”
Bob is married with one child. His wife is employed but is not offered coverage by her Employer.
Bob works at Star Palace an Employer with Less than 50 Full-time equivalent Employees. He makes $12.50/hr or $26,000.00 Annually. Star Palace offers coverage to Employees only, and contributes 50% towards the monthly premium for Bob. The plan that the company Sponsors costs $318 a month, Bobs payroll deduction per month will be $159.00 after the companies 50% contribution.
-Bobs’ income Annually: $26,000.00
-Bobs monthly Income: $2470.00
-9.5% of Bobs monthly income is $234.65
Is this plan Affordable for Bob?
Yes! 9.5% of Bobs monthly income is $234.65. Since his actual cost per month is only $159.00 which is less than $234.65 it is an affordable plan.
Is Bob able to go to Covered California to apply for Financial assistance?
No! Bob is Ineligible for Premium Subsidies because he is offered “Affordable” coverage from his employer
What about his Wife and Child? Can they go to Covered California and apply for assistance?
Yes! Since Bobs employer only offers coverage to Bob. His Wife and Child will be able to apply through Covered California and possibly receive some sort of assistance.
Contact us for more information