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New Rates for “Affordable Coverage” for 2015: Rev. Proc. 2014-37

Posted in Plan Administration, Welfare Plans

Under the terms of the ACA, large employers are required to provide affordable coverage beginning in 2015 or potentially face penalties.  For 2014, the definition of affordability was set at 9.5% of the employee’s income.  Within the definition of affordability, there is also a provision that provides for adjustment of that figure in the future and the IRS has issued its first adjustment for the 2015 plan year.

For plan year beginning in 2015, Rev. Proc. 2014-37 sets the new limit at 9.56% of employee income.  Revenue Procedure 2014-37 also adjusts the affordability percentage for the exemption from the individual mandate for individuals who lack access to affordable minimum essential coverage.  For plan years beginning in 2015, coverage is unaffordable for purposes of the individual mandate if it exceeds 8.05% of household income (as opposed to 8% originally).

This change stems from the requirement that the IRS must adjust the affordability percentage to reflect the excess of the rate of premium growth over the rate of income growth for the preceding calendar year, with each subsequent plan year being adjust accordingly.  Admittedly, this is hardly a monumental change for 2015, but it does serve as a reminder to employers that the definition of “affordable” can change.  So a key component of building a solid ACA compliance plan includes checking to see if the various limits and percentages have changed prior to a plan year.  Don’t assume things remain static because the act clearly provides for change.