This 
Affordable Care Act.
Is My Plan Affordable?
Regulations define affordability as the premiums contributions made by the employee must be less then 9.5% of household income.
Because employers can not determine household income, the regulations allow for some safe harbor methods to determine if the plan is affordable.
Safe Harbors
There are three safe harbor methods:
- 9.5% of Box 1 W-2 Earnings
- 9.5% of Rate of Pay
- Federal Poverty Level (FPL):
- 138% of FPL for states with Medicaid expansion
- 100% of FPL for states without Medicaid expansion
Each method is described in the
Box 1 W-2 Earnings Safe Harbor
The annual employee contribution shown is based on the Bureau of Labor Statistics (http://www.bls.gov/) Medical Care Benefits, single coverage:
The employer and employee premiums by employee contribution requirement according to Table 11, the 2012 average employee monthly contribution is $107.78.
- Determine the Annual Employee Contribution for employee-only coverage.
This is the annual amount the employee pays for their contribution for your medical plan.
Example: $1,293.36
The amount above is calculated from: $107.78 x 12 months = $1,293.36
- Determine your lowest paid full-time employee’s Box 1 W-2 wages.
Example: $15,600
The amount above is calculated from: $7.50 x 40 hours x 52 weeks = $15,600
- Determine the percentage by dividing the amount from Step 1 by the amount in Step 2.
Example: $1,293.36/$15,600 = 8.29%
Conclusion: Based on this method of calculation, such a plan would be considered affordable for this employee.
Rate of Pay Safe Harbor
- Determine the Annual Employee Contribution for employee-only coverage.
Example: $1,293.36
The amount above is calculated from: $107.78 x 12 months = $1,293.36
- Determine the expected annual salary of your lowest paid full-time employee.
Example: $11,700
The amount above is calculated from: $7.50 x 30 hours x 52 weeks = $11,700
- Determine the percentage by dividing the amount from Step 1 by the amount in Step 2.
Example: $1,293.36/$11,700 = 11.05%
Conclusion: Based on this method of calculation, such a plan would not be considered affordable for this employee.
Federal Poverty Level Safe Harbors (With or Without Medicaid Expansion)
- Determine the Annual Employee Contribution for employee-only coverage.
Example: $1,293.36
The amount above is calculated from: $107.78 x 12 months = $1,293.36
- Use the percentage according to Medicaid expansion.
Example 1: States without Medicaid expansion (100% of FPL) = $11,542.90
Example 2: States with Medicaid expansion (138% of FPL) = $15,929.00
- Determine the percentage by dividing the amount from Step 1 by the amount in Step 2.
Example 1: $1,293.36/$11,542.90 = 11.20%
Example 2: $1,293.36/$15,929.00 = 8.11%
Conclusion: Based on this method of calculation Example 1 would not be considered affordable for this employee; whereas Example 2 would be considered affordable.