Eligibility and Affordability

The Shared Responsibility Mandate requires Applicable Large Employers to offer Minimum Essential Coverage (MEC) to substantially all full-time employees (95%). Employers are responsible for determining and monitoring employee eligibility throughout the year, as well as ensuring that coverage remains affordable.

  • Affordability: Employees who are offered employer-sponsored coverage that’s affordable and provides minimum value aren’t eligible for a premium tax credit (subsidy). Coverage is considered affordable if the employee’s share of the premium for employer-provided coverage is not more than 9.5% of his or her annual household income. But because employers generally won’t know that number, they can determine group health coverage affordability by applying one of three measurements known as Safe Harbors:
    • W-2 INCOME: Instead of basing the calculation on total household income, employers can use the figure in Box 1 of an employee’s W-2. As long as the employee is not paying more than 9.5% of that number, the coverage is considered affordable.
    • Rate of pay. Employers can base calculations on the pay rate of their lowest-paid employee.
    • Federal Poverty Line. Employers can also use the federal poverty line for their area as the basis of calculating affordability.

Safe Harbor calculations must be applied consistently for all employees in a category.

  • Eligibility: Employers are also responsible for monitoring employee hours in order to assess their ongoing eligibility for benefits. They may use one of two methods:
    • The monthly measurement method: the employer counts each employee’s hours of service for each month in order to determine full-time status (and hence eligibility for coverage). This method can cause a great deal of additional work for HR and Benefits staff as employees move in and out of eligibility.
    • The look-back measurement method: the employer determines full-time status during a future period (the stability period), based upon hours of service of the employee in a prior period (the measurement period).

We recommend the look-back method, which has three stages to allow for more accurate tracking:

  • The measurement period is at least 3 months, but more often a year, during which you monitor an employee to assess whether he or she has worked more than 30 hours a week on average – which is considered to be full-time.
  • The administrative period is used to determine if employee is an FTE and to notify them of their status and eligibility. It may not be longer than 90 days, and can’t shorten the stability period.
  • The stability period is an amount of time at least as long as the measurement period during which an employee’s status is fixed, based on your calculations. In other words, if you determined someone was full-time during the measurement period, they’re considered full-time during the stability period, even if their hours change.