The Internal Revenue Service has announced cost-of-living adjustments (COLAs) for affordability, Health Savings Accounts (HSAs), and High Deductible Health Plans (HDHPs) for 2017. These early announcements are welcome, allowing employers to plan ahead.
The 2015 and 2016 affordability adjustments were not announced until December 2015, making planning impossible.
For 2017, employers can require employees to pay up to 9.69% of pay and still be considered affordable (up from 9.66% for 2016). The health care reform statute says it is a percentage of household income. Since employers do not know the household income of employees, the regulations give three safe harbors — W-2 earnings, rate of pay, and the federal poverty level. If an employer fails to offer a full-time employee affordable, minimum value coverage and that employee gets a subsidy through an Exchange (Marketplace), the employer will be assessed a penalty. The amount of the 2017 penalty has not yet been announced. The 2016 penalty is $270 per month ($3,240 for a whole year).
There are problems with each of the safe harbors. The W-2 safe harbor generally produces the highest amount; however, if someone qualified as a full-time employee during a measurement period and is offered coverage, but has a reduction in hours during the stability period, the affordability test may not be met. The rate of pay safe harbor is generally a predictable amount, but can only be based on 30 hours per week, not actual hours worked. The federal poverty level safe harbor is also predictable, but produces the lowest allowable contributions.
Most of the limits for HSAs and HDHPs will be unchanged for 2017. The maximum contribution to an HSA in 2017 will increase by $50 for people with self-only coverage, going from $3,350 to $3,400. The maximum contribution for people with family coverage will remain $6,750. The limits for HDHPs will all be the same in 2017 as for 2016. The maximum out-of-pocket limit for individuals will still be $6,550 and for families it will continue to be $13,100. The minimum annual deductible for an individual will again be $1,300 and the minimum family deductible will be unchanged at $2,600.