The Affordability Calculator is a point in time calculation used to assess the affordability of health coverage, designed to be used at the beginning of the plan when adjustments to plan costs or compensation can be made to proactively prevent penalties at the end of the year. Employees with an ACA classification of eligible or variable hour employees who have completed a measurement period are assessed using the Rate of Pay safe harbor to determine affordability. Affordable means the cost of single coverage offered to the employee does not exceed 9.86% (2019) of the employee’s rate of pay. For hourly employees, 130 hours is used in the safe harbor calculation, regardless of the actual hours the employee works.
Federal Poverty Line Safe Harbor and W2 Wage Safe Harbor do not need this calculator for proactive compliance testing. Federal Poverty Line safe harbor does not consider employee wages, and only looks at the cost of single coverage. For 2019, if employees did not pay more than $99.75 per month, the coverage was considered affordable using the FPL safe harbor. The W2 safe harbor uses the Box 1 value of the employee’s current year W2. Because this value cannot be determined until the end of the year, a proactive tool is not helpful when all the data is available to generate the 1095.
The tool is looking for all employees who are active and have a hire date, and calculates the rate of the employee only coverage for the selected plan. If rates or contributions are "class" based, we are using this cost in the calculation. Employees who have an hourly rate set, even if they also have a salary, are having their hourly rate used in the calculation. The Rate of Pay Safe Harbor assumes the employee works 130 hours per month, regardless of whether the employee actually works more or less hours. The hourly rate x 130 x 12 is the salary equivalent for the employee's who have an hourly rate set. Everyone else is using the annual salary value for the calculation.
The employees who are failing affordability are those whose yearly cost of coverage (monthly employee class-based cost x 12) divided by their salary or salary equivalent (excluding employees who have a $0 salary since we can't divide by 0) is greater than 9.86%. These employees are listed with costs greater than 9.86%.
Annual Compliance Costs Details
The annual compliance costs options are designed to help provide insight into the options available to bring the plan into compliance. Option 1 projects the cost to bring the employee cost of coverage up for all employee's evenly so that the lowest paid employee is at the 9.86% minimum. Option 2 projects the cost to increase the pay for the lowest paid employees so that these employee are now at a level in which the cost of coverage is affordable. Option 1 is a projection, because it determines the minimum employee contribution between all the failing employees, and used this to determine how much this employee's cost of coverage needs to decrease. This amount is then annualized, and multiplied by all employees who are eligible for the plan. If there are class-based contributions, we are not using those figures into this calculation.
- Employees who are missing demographic information that would be used to determine plan rate or contribution calculation are not included in the calculations (because we can't determine their cost)
- Employees missing a salary or who have a $0 salary are not included in the calculations
- Class-based costs are not included in the Option 1 compliance calculation
- Terminated employees are not tested, neither are those missing a hire date