Author: Nathanael M. Alexander, Esq., Director of Compliance – AP Benefit Advisors
On January 17, 2020, the Department of Health and Human Services (HHS) published the updated Federal Poverty Level (FPL) guidelines for 2020. The revised FPL guidelines are effective as of January 15, 2020, with the new FPL level set at $12,670 for a person residing in the contiguous U.S. or Washington D.C., $14,680 for Hawaiian residents, and $15,950 for persons residing in Alaska.
What is the Federal Poverty Level?
A measure of household income issued every year by HHS. Federal poverty levels are used to determine eligibility for certain programs, subsidies, and benefits, including savings on Marketplace health insurance, and Medicaid and CHIP coverage. The FPL is a measurement of a family’s annual income, with each local, state, and federal assistance agency applying the guidelines for eligibility purposes in their programs in their own way, i.e., some agencies may define a household’s income as pre-tax while others may consider only a household’s post-tax income in their calculation for eligibility.
How often are the FPL Guidelines updated and to whom do they apply?
HHS updates the FPL guidelines annually every January, modifying them accordingly to account for inflation, and issues specific guidelines for each household size.
The FPL can affect employer-shared responsibility (ESR) assessments under the Affordable Care Act (ACA) as it pertains to both premium tax credits and affordability testing.
In order to be considered eligible for the premium tax credit, your household income must be between 100-400% of the federal poverty line amount in accordance with your family size. However, there are two exceptions that are applicable to those with household income below 100% of the corresponding federal poverty line. Those two exceptions are outlined here in the Instructions for Form 8962 (Premium Tax Credit Form), in addition to more specific information on how to go about obtaining the premium tax credit. It must of course be noted that household income alone does not solely qualify an individual to receive the premium tax credit, as other eligibility criteria must also be met. Aside from income, the other four factors that must be considered include the following:
- cost of available insurance coverage,
- state of residence,
- physical address, and
- family size.
For affordability testing, employers are utilizing this safe harbor test to determine whether or not their lowest-cost, self-only minimum essential coverage (MEC) plan is considered affordable to its employees. This is where the FPL guidelines come into play. If the employer is providing a plan that does not meet the affordability rules an employee would then have access to premium subsidies, so long as they meet the other requisite eligibility requirements. Premium subsidies are not available to individuals with a household income that exceeds the 400% FPL threshold, as discussed above, and to employees residing in the U.S. illegally. Since open enrollment for 2020 plans occurred in 2019, the 2019 FPL guidelines will be used to calculate affordability for any plans with a 2020 effective date. The maximum monthly premium contribution that meets the FPL safe harbor test for affordability would be set at 9.86% of the prior year’s FPL amounts divided by 12. So, for example, using the 2019 FPL amount for the mainland U.S., the formula would be (9.78% x $12,490) ÷ 12, which equals $101.79.
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