Determining Plan Affordability Under the Affordable Care Act | IRS Notice 2015-87

Written by benefitexpress | June 21, 2016

Affordable Care Act 

Our next webinar on June 28th will be going over legislative updates released since our last legislative webinar in December. Many companies are currently prepping for annual enrollment, so it’s the perfect time to review your plans and make sure they are ACA compliant! IRS Notice 2015-87 introduced additional guidelines for determining plan affordability under the Affordable Care Act. Employers have until the end of plan year beginning before December 16, 2015 to make their plans compliant.

The important points, in plain English:

  • If an employee has employee-only coverage, their plan cannot include an HRA that can be used to cover medical expenses for their spouse and children.
  • Employer flex contributions can only reduce employee contributions when determining affordability if the contributions can only be used for health spending (cannot be received as a taxable benefit and can only be used for medical care).
  • Opt-out payments (cash payments to employees for waiving health coverage) will be considered an additional charge when determining affordability of a plan (as they are being charged the amount of that additional salary for declining coverage).
    • In future, additional stipulations, like providing proof of coverage under a spouse’s plan, may affect this condition.
    • The IRS plans to issue further guidance on this issue. We’ll keep you updated!
  • Federal contractors are required to either pay prevailing wages and fringe benefits or cash out fringe benefits.
    • Until the IRS updates their guidance, these cash payments can be considered as reducing employee contributions for purposes of the ACA employer mandate and reporting.
    • They do not have to be considered as increasing affordability for purposes of the ACA individual mandate or premium tax credit eligibility.
  • Affordable coverage (under the ACA employer mandate) is defined as costing no more than 9.5% of household income (or 9.5% of W-2 Wages, 130 hours multiplied by the hourly rate of pay or the poverty level for safe harbors).


Have more questions about IRS Notice 2015-87? Register for our next webinar!


Topics: Legislative Update, Affordable Care Act