The Department of Health and Human Services (HHS) recently released the 2021 federal poverty levels (FPL) for 2021, which is $12,880 for mainland U.S. ($14,820 for Hawaii and $16,090 for Alaska). This is an increase from the 2020 FPL of $12,760. The FPL can be used to determine whether employer-sponsored plans are considered “affordable” under the Affordable Care Act (ACA) FPL safe harbor. Based on the new 2021 FPL figures, employers will meet ACA affordability requirements if they offer at least one plan that cost employees less than $105.51 for self-only coverage. Employers with non-calendar year plans beginning in 2021 can use these new figures when determining how much they must contribute toward group health plan coverage to meet ACA affordability, as discussed below.
Background
The ACA requires applicable large employers (ALEs), those with 50+ full-time and full-time equivalent employees in the prior calendar year, to offer “affordable” minimum value coverage to their full-time employees and their dependents or face a potential penalty. For plan years beginning in 2021, coverage is considered “affordable” if the cost for self-only coverage is less than 9.83% of their household income. Employers can determine employees’ household income by using one of three safe harbors: (1) Rate of Pay; (2) W-2; and (3) FPL.
Federal Poverty Level Safe Harbor
For 2021, plans will be considered affordable under the FPL safe harbor if the employer offers at least one plan where the employee cost for self-only coverage is less than 9.83% of the FPL. Since HHS publishes the FPL for each year during the January/February timeframe, calendar year plans that start before that year’s FPL figures are released can rely on FPL amounts from the prior year. Therefore, the dollar amount that meets the FPL safe harbor can differ depending on a plan year’s start date:
- For calendar year plans beginning in 2021, the FPL safe harbor is met if the employer offers at least one plan where the employee cost for self-only coverage is less than $104.52 (9.83% of 2020’s FPL of $12,760/12 months).
- For non-calendar year plans beginning in 2021, the FPL safe harbor is met if the employer offers at least one plan where the employee cost for self-only coverage is less than $105.51 (9.83% of 2021’s FPL of $12,880/12 months).
Employer Action Items
- Employers with 2021 calendar year plans who are using the FPL safe harbor (based on the 2020 FPL figures) have no action. These employers should already be offering at least one plan that cost employees less than $104.52 for self-only coverage.
- Employers with 2021 non-calendar plans that would like to use the FPL safe harbor to meet affordability requirements should design their contribution strategies so that at least one plan offered to all full-time employees cost less than $105.51 for self-only coverage.
- For Sequoia One PEO Employers Only: Your Sequoia One team will further discuss the ACA requirements for offering affordable coverage with you during renewal for the upcoming plan year beginning July 2021.
Additional Resources
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2021 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved
