Thursday, January 10, 2013

Defining Affordable

The folks up in DC that bestowed upon us the "Affordable" Care Act have done (almost) everything they could to make health care, and health insurance UN-affordable. Seems like hardly a day or week goes by without them deciding it is time to release another rule, regulation or edict about how they are changing a system that worked reasonably well for over 90% of the population.

We have talked before about how the MLR rules were supposed to squeeze carriers into making health insurance premiums more affordable but instead, have done just the opposite. 

I an wonder how many wasted hours employers have spent trying to calculate rebate checks and allocate them to current and former employees.

As 2014 approaches now they have to figure out what is affordable.

Of course the goobers in DC have their own set of rules and guidelines. Ignore the fact that almost none of them have ever worked in private business much less had to figure out how to make payroll. Reminds me of Jethro Bodine who, every week, wanted to be something different when he grew up. One week it was an airline pilot. The next a brain surgeon.

Of course Uncle Jed didn't discourage him and told Jethro he could be almost anything he wanted.

So back to that affordable issue . . .

The folks at Cigna were kind enough to keep brokers in the loop, at least for now, and sent out this memo on "the mandate" and an IRS definition of . . . affordable.
Coverage is considered “affordable” if employee contributions for single coverage do not exceed 9.5% of the employee’s wages. The regulations provide three safe harbors that employers can use to determine if employee coverage is affordable:
  • 9.5% of an employee’s W-2 wages for the year
  • 9.5% of an employee’s monthly wages determined by multiplying the employee’s hourly rate by 130 hours per month
  • 9.5% of the Federal Poverty Level for a single individual


At least employers have some guidelines.

Or do they?

A few months earlier the folks at Forbes had this to say about affordability.
An employee is eligible for such a subsidy, and can thus trigger the penalty, if the employee’s share of the health insurance premium is “unaffordable” – which is defined as more than 9.5% of the employee’s family income, if the employee’s family income is also between 138% and 400% of the federal poverty level (FPL). The intent appears to be to discourage employers from “dumping” their lower-income employees onto the taxpayers by setting high employee premium share – although it might just as well discourage employers from hiring people from low-income families.
When informed of this provision, employers naturally ask, “How are we supposed to know our employee’s family income?” 
Let's overlook the obvious for now, that one piece talks about employee income while the other refers to family income. The bigger issue is raised by the question . . . just how IS an employer supposed to know family income.
Taking it further, how is the employer supposed to know the individual (or families) AGI (Adjusted Gross Income)?
If the employer pays the employee $50k the employer can GUESS at family income and GUESS at AGI but what happens if they guess wrong?
The rules say affordable is defined as 9.5% of AGI. So if the employer contribution is $200 per month and the employee/family AGI is $3750 but that employee is expected to pay $700 per month as their share of the premium that $700 represents 18% of AGI.
The plan is no longer affordable and the employer must either pony up more money, pay a penalty or drop the plan.
I doubt even the superior ciphering ability of Jethro could figure this one out.

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