IRS Issues ACA Affordability Limit and Expands HSA Preventive Care  

Last week the IRS issued guidance on two topics of burning importance for many employers:  ACA affordability and the HSA preventive care list. Before you finalize your 2020 benefits, you’ll want to review the guidance and determine whether you need to update your health plan contributions and coverage of preventive care services. (Spoiler alert – the FPL safe harbor contribution amount is $101.79).

ACA Affordability. If you’ve been waiting for the ACA’s affordability limit to finalize your 2020 contributions for employee health coverage – it’s finally here! For the 2020 plan year, employer-sponsored health coverage will meet the Affordable Care Act’s affordability standards if the required employee contribution doesn't exceed 9.78% of household income. For calendar-year plans using the federal poverty line (FPL) affordability safe harbor, the required contribution for the lowest-cost, self-only option with minimum value cannot exceed $101.79 per month (9.78% of the FPL for a particular area — $12,490 for mainland US). 

As a reminder, this affordability percentage can affect individuals' eligibility for federally subsidized coverage from a public exchange, as well as employers' potential liability for shared-responsibility (or "play or pay") assessments. To determine liability for play-or-pay assessments, three employer safe harbors allow replacing household income in the affordability calculation with one of these figures: Form W-2 wages, rate of pay, and FPL. Read our full GRIST for more information about the affordability standards and how to calculate the FPL safe harbor contribution limit for noncalendar-year plans. 

HSA Preventive Care. The IRS just expanded their HSA preventive care list – something patients, providers and employers have all been advocating for. In short, the IRS has determined that certain medical care services received and items purchased, including prescription drugs, for certain chronic conditions should be classified as permitted preventive care for someone with that chronic condition. As such, this limited set of preventive care services, drugs and devices may be provided on a low- or no-deductible basis without jeopardizing an individual's eligibility to make or receive tax-free HSA contributions. 

Significantly, HSA-qualifying HDHPs are limited to the 14 services and items on the above list and may not use the IRS rationale for developing this list to characterize other services, items or drugs as preventive care. The Notice has no effect on the Affordable Care Act’s definition of preventive health services that nongrandfathered plans must offer on a first-dollar basis for in-network providers. You can read a detailed analysis of the guidance in our GRIST article.

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