IRS Releases ACA Affordability Rates for 2017

The Internal Revenue Service has released Revenue Procedure 2016-24 to implement index adjustments in 2017 for certain Affordable Care Act ("ACA") contribution percentages.

Background.  Under ACA, contribution percentages are used to determine: (i) whether an Applicable Large Employer ("ALE") is subject to the ACA's employer shared responsibility penalty for failing to provide affordable coverage that provides minimum value to a full-time employee, (ii) whether an individual is exempt from the ACA's individual mandate penalty due to lack of access to affordable coverage, and (iii) the amount of an eligible taxpayer's ACA premium tax credit.

The ACA's employer shared responsibility rules require ALEs to offer affordable, minimum value health coverage to full-time employees.  (Note: ALEs are employers that had 50 or more full-time equivalent employees during the preceding calendar year.) The ACA provides that an ALE's coverage is affordable if the employee's required contribution for self-only coverage does not exceed a certain percent of the employee's household income for that tax year. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year per each full-time employee who receives a premium tax credit through an Exchange. 

The ACA's individual mandate requires most individuals to either obtain minimum essential coverage or pay a penalty.  Individuals who lack access to affordable coverage, however, are exempt from the mandate.  The ACA provides that coverage is affordable for an employee if the required contribution for the lowest-cost, self-only coverage does not exceed a certain percent of the employee's household income for that tax year. 

The ACA's premium tax credits help low-income individuals and families afford health insurance purchased through a state or federal Marketplace.  A taxpayer's premium tax credit is the lesser of (i) the premiums for the plan or plans in which the taxpayer or one or more members of the taxpayer's family enrolls, and (ii) the excess of the premiums for the applicable second lowest cost silver plan covering the taxpayer's family over the taxpayer's contribution amount.  A taxpayer's contribution amount is calculated as a percentage of the taxpayer's household income, based on the federal poverty level.  Thus, a taxpayer's contribution amount increases as the taxpayer's household income increases. 

Revenue Procedure 2016-24.  Revenue Procedure 2016-24 implements the following adjustments to the ACA's contribution percentages:

Employer Shared Responsibility.  For 2017, the required contribution percentage has increased to 9.69% (from 9.66% in 2016).  This means that if an employee's share of the premium for employer-provided coverage (in 2017) is more than 9.69% of his or her household income, the coverage is not considered affordable for that employee and the ALE may be liable for a penalty if that employee obtains a premium tax credit through an Exchange.

Individual Mandate.  For 2017, the required contribution percentage for determining whether an employee has access to affordable coverage increases to 8.16% (from 8.13% in 2016).  Thus, an employee will be determined to have access to affordable coverage if the required contribution for the lowest-cost, self-only coverage does not exceed 8.16% of household income. 

Premium Tax Credit.  For 2017, the contribution amounts are as follows:

  • Up to 133% FPL: 2.04%
  • 133 - 150% FPL: 3.06 - 4.08%
  • 150 - 200% FPL: 4.08 - 6.43%
  • 200 - 250% FPL: 6.43 - 8.21%
  • 250 - 300% FPL: 8.21 - 9.69%
  • 300 - 400% FPL: 9.69%.

Revenue Procedure 2016-24 is available at: https://www.irs.gov/pub/irs-drop/rp-16-24.pdf