You might know that the term affordability can mean different things under the Affordable Care Act (ACA). The definition can actually change based on which part of the law is applied, when it is applied and which party is involved.
For example, ACA has a new large employer fair share requirement (delayed until 2015). This will penalize employers who either do not offer coverage to full time employees or who provide coverage that is "unaffordable" or does not comply with certain minimum coverage thresholds. To be able to prove affordability, Large Employers will have different safe harbors to choose from including W2 wages, rate of pay, and federal poverty line rules.
ACA also has an individual mandate requirement that will provide a tax penalty for some individuals who do not choose to elect health coverage for themselves or applicable family members. This rule has a special exception if their coverage is unaffordable determined by a different analysis.
Last but not least, the ACA will provide subsidies to certain individuals to encourage them to elect coverage. These subsidies go away if the person or family member was offered affordable coverage and this determination may change based on income later reavaluated at tax time.
In short, there are three different rules each with its own definition(s) of affordability. Also, the individual mandate and the subsidy evaluation can change between the employee and their family. What is affordable for one (i.e. the employee), may or may not be affordable for another (i.e. the family members).
This essentially means there are 5 distinct definitions of affordability.
To add to the confusion, there appears to be at least three different definitions of modified adjusted gross income (MAGI) in the ACA. One definition is used for the new Medicare tax on investment income (26 USC 1411), one for premium subsidy eligibility (26 USC 36B) and one for the individual mandate (26 USC 5000A).
If you need help understanding these terms or others under the ACA, please contact Kinney & Larson LLP.