Updated 2020 federal poverty levels can impact ESR affordability

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Updated guidelines set the 2020 federal poverty level (FPL) at $12,760 — up from $12,490 in 2019 — for a person living in the mainland US, but $14,680 in Hawaii and $ 15,950 in Alaska. Under the Affordable Care Act (ACA), the FPL can affect employer shared-responsibility (ESR) assessments in two ways:

Premium tax credits. Individuals with household incomes between 100% and 400% of the FPL are potentially eligible for premium tax credits for health coverage purchased through a public exchange. Full-time employees' receipt of subsidized exchange coverage can trigger assessments.

Affordability testing. Employers can use the FPL under one ESR safe harbor to test whether their lowest-cost, self-only minimum essential coverage (MEC) with minimum value is affordable to employees. When conducting this test, an employer may use any applicable FPL in effect within six months before the start of the plan year.

2020 FPL affordability safe harbors. The Department of Health and Human Services (HHS) annually adjusts the FPL to reflect the year-to-year increase in the Consumer Price Index for All Urban Consumers. HHS issued the 2020 FPL figures on Jan. 17, so employers with calendar-year plans can’t rely on the higher FPLs for 2020 affordability testing. Instead, calendar-year plan sponsors must use the 2019 FPL amounts. As a result, the 2020 FPL safe-harbor monthly employee contribution limits for the lowest-cost, self-only MEC with minimum value are:

Noncalendar-year plans beginning in 2020: $103.99, calculated as (9.78% x $12,760 FPL for 2020) ÷ 12, rounded to the nearest penny
2020 calendar-year plans: $101.79, calculated as (9.78% x $12,490 FPL for 2019) ÷ 12, rounded to the nearest penny

Related resources

Non-Mercer resources

Annual Update of the HHS Poverty Guidelines for 2020 (Federal Register, Jan. 17, 2020)
Q&As on Employer Shared-Responsibility Provisions Under the Affordable Care Act — Affordability (see Q&A 40) (IRS, Sept. 11, 2019)
Annual Update of the HHS Poverty Guidelines for 2019 (Federal Register, Feb. 1, 2019)

Mercer Law & Policy resources

HHS posts 2019 federal poverty levels (Jan. 28, 2019)

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Cheryl Hughes

by Cheryl Hughes

Principal, Mercer’s Law & Policy Group

Dorian Smith

by Dorian Smith

Partner, Mercer’s Law & Policy Group

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