Affordability rules have changed since the implementation of the "Family Glitch" in 2023. The purpose of the rule is to determine if an employee's company health insurance is "affordable". If the group insurance is NOT considered affordable, the employee and/or family may be better off on a Connect for Health Colorado plan with a tax credit. Employers with over 50 full-time equivalent Employees (FTE's) may face penalties if an employee's group coverage is determined unaffordable.
Employees offered an employer sponsored health plan can be a little tricky to understand. Typically, the employee paid portion of their company plan is taken out tax-free, so if the costs are close, the employer sponsored plan will usually make more sense. Some employer policies are COMPOSITE rated which means they typically just have 4 rates for any given plan. EO (Employee Only), ES (Employee+Spouse), EC (Employee+Child(ren) and Family. These composite premium costs are based on a blend of all the employee's ages and are the same for older and younger employees. Employers can also have AGE BANDED rates which are similar to Individual policies where premiums are specific to the age of each member on the policy
You will need to have the employee ask their company about the "Employee only" cost (after company contribution) and the family cost if applicable (again after company contribution) to determine affordability.
Group ICHRA's work a little differently as you will need to get the 'Employee only' and family cost for the lowest priced Silver policy on the Exchange for that member, less the company's contribution.
We can help you figure this out. It's why we were founded.
The first step in determining if an employee's group plan is affordable is to find out the employee's cost for the "Employee only" coverage on the company's lowest cost health plan. In the case of an ICHRA (Individual Coverage HRA group plan that uses individual policies for group coverage), you need to find out the cost for the employee using the lowest cost Silver plan on that state's Exchange, less the company's contribution. (We can help with that.)
While you are getting the employee's costs, you will also want to find out the lowest cost to insure the whole family (if they have dependents) as you will need it later. The coverage offered by the employer needs to meet true health insurance requirements. (Can't be a limited benefit or Health sharing plan).
This amount is usually estimated using the family's most recent income tax return. Some people will simply use the family's W-2 income. The employer may use a different basis ("Safe Harbor") to determine affordability, but using the employee's actual numbers is best.
Affordability comes in two parts: affordability for the employee, and affordability for their dependents.
If the employer's offering is determined to be unaffordable then they can go to Connect for Health Colorado (C4) and may qualify for a plan with a tax credit along with their dependents. They can always get a C4 or direct policy without a tax credit if they have a qualifying SEP.
If the employer plan is considered affordable for the employee, but not the dependents, then under the new Family Glitch rules the family members may be able to get an individual policy with or without a tax credit.
Multiply the employee's (and their family's) gross annual income by .0912 (9.12% for 2023) and divide by 12 for monthly income and then compare it to their Employee cost on the lowest cost plan offered by the company.
Example: employee (and family if applicable) make $60,000/yr. Multiplying by 9.12% and dividing by 12 means the employee can afford to pay up to $456/month for health insurance.
If the employee's cost for the lowest cost employer Plan is below that, then the employer plan is considered affordable, and the employee does not qualify to get a tax credit plan on C4.
If the employee's company plan cost is above that, then the Employee (and their family) can go to the Exchange and get a tax credit plan.
Multiply the Employee's (and their family's) gross annual income by .0912 (9.12% for 2023) and divide by 12 for monthly income and then compare that to the Family cost for the lowest cost plan offered by the company.
Example: Employee (and family if applicable) makes $60,000/yr. Multiplying by 9.12% and dividing by 12 means the employee can afford to pay up to $456/month for health insurance.
If the FAMILY cost for the lowest cost employer plan is below that, then the employer plan is considered affordable, and the employee and their family do not qualify to get a policy with a tax credit on C4.
If the family's cost is above that, then the dependents can go to the Exchange and get a tax credit plan.
This is the solution to the "Family Glitch". The rules also allow for a shortcut that says if the employer doesn't contribute to the Spouse or Children, they will qualify for an Exchange plan just by the fact the employer didn't contribute to the dependent's cost.