What is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA), also known as Obamacare, was signed into law in 2010. It aimed to increase access to health insurance and make it more affordable for individuals and families. One of the key provisions of the ACA is the requirement for employers with 50 or more employees to offer affordable health insurance to their employees.

Employer Contribution and Affordability Calculation

Under the ACA, employers are required to offer health insurance coverage that meets certain affordability standards. To determine affordability, employers can use two methods:

1. Hourly Rate Calculation: Employers can estimate employees’ monthly income based on their hourly rate and assume they work 30 hours per week. Using this method, the maximum affordable premium is calculated as 8.39% of the estimated monthly income.
2. Year-End W-2 Calculation: Employers can also use employees’ end-of-year W-2 forms to determine their monthly income. The maximum affordable premium is calculated as 8.39% of the monthly income derived from the W-2.

Determining Eligibility for Premium Tax Credits

Individuals who have access to affordable employer-sponsored health insurance are not eligible for premium tax credits under the ACA. Premium tax credits are financial assistance provided by the government to help low- and moderate-income individuals and families purchase health insurance through the Health Insurance Marketplace.

Case Example

In the post, the individual earns $17 per hour and is offered an employer-sponsored health insurance plan with a monthly premium of $57.05. Using the hourly rate calculation method, the employer has determined that this premium is considered affordable because it is less than 8.39% of the estimated monthly income of $2,210. Therefore, the individual would not be eligible for premium tax credits under the ACA.

Important Note

Employers are required to accurately determine the affordability of their health insurance plans. However, it’s important to note that individuals can appeal an employer’s determination if they believe the plan is not truly affordable. If an appeal is successful, the individual may become eligible for premium tax credits.

Conclusion

Determining the affordability of employer-sponsored health insurance is crucial for both employers and employees. By understanding the calculation methods and eligibility criteria, individuals can make informed decisions about their health insurance options and ensure they receive the maximum financial assistance available under the ACA. If you are unsure about the affordability of your employer-sponsored plan or have questions about premium tax credits, it’s always advisable to consult with a licensed insurance agent or contact the Health Insurance Marketplace for assistance.