Stethoscope and money In order to be deemed “affordable,” the employee cost for self-coverage cannot exceed a certain percentage of the employee’s household income or of one of the three affordability “safe-harbors.” (Photo: Shutterstock)

Under the Affordable Care Act’s (ACA) Employer Shared Responsibility provisions—also known as the “employer mandate” or “pay or play provisions”—applicable large employers (ALEs) with 50 or more full-time employees (working an average of 30 hours or more) risk significant penalties if they don’t make affordable health coverage available to their employees. Under these provisions, employers must either offer minimum essential coverage that is “affordable” and provides “minimum value” to full-time employees, or potentially pays an employer shared responsibility payment to the IRS. These provisions penalize employers who either do not offer coverage or do not offer coverage which meets minimum value and affordability standards.

Some employers may choose to offer their employees “opt-out payments” or “cash in lieu of benefits,” which are essentially cash incentives to waive employer-provided medical coverage. These opt-out arrangements are generally permissible under ACA but come with limitations. A key under ACA is to offer employees health care that is affordable, but, when an employee declines the opt-out payment, how do you calculate “affordable?”

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