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Client Alert: 2020 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

Government has Issued the 2020 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability HHS Announces OOP Limitations for 2020 With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to […]


Government has Issued the 2020 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

HHS Announces OOP Limitations for 2020

With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to certain in-network benefits… meaning that once an individual or family out-of-pocket (OOP) limit was met, the plan could not charge additional OOP costs for essential health benefits. These OOP limits include both the plan’s deductible as well as cost-sharing amounts for essential health benefits (EHB) in-network as set forth under the ACA.

Although self-insured plans and large-group insured plans are not required to cover all EHBs (while small-group insured plans are), to the extent they do, in-network OOP expenses for EHBs cannot exceed the maximum OOP limit. Additionally, group health plans may not impose annual or lifetime dollar limitations on EHBs whether offered in-network or out-of-network.

The Department of Health and Human Services (HHS) has released the 2020 plan year inflation-adjusted OOP limits applicable to non-grandfathered plans.

  • Self-only coverage:      $8,150 (was $7,900 for 2019)
  • Family coverage:         $16,300 (was $15,800 for 2019)

See https://www.govinfo.gov/content/pkg/FR-2019-04-25/pdf/2019-08017.pdf.

Employers with non-grandfathered group health plans must update their maximum annual OOP limits.

These rules do not apply to ACA grandfathered plans. [Please note that these cost-sharing limits are different than the maximum out-of-pocket limits for purposes of being HSA-qualifying high deductible health plans.]

HHS Announces ACA Employer Mandate (Pay or Play) Penalty Amounts for 2020

Under the ACA, applicable large employers must offer certain group health plan coverage to their full-time employees; otherwise they will risk significant penalties.

Applicable large employers are those who employ 50 or more full-time or full-time equivalent employees in the preceding calendar year. Employees of related employers (within a controlled group or affiliated service group) are counted in this determination.

  • Part A requires employers to offer minimum essential coverage to 95% of their full-time employees.  See Section 4980H(a).
  • Part B requires the offered coverage be affordable and meet the minimum value standards.  See Section 4980H(b).

Specifically, the Part A Penalty is imposed on an employer who fails to offer minimum essential coverage (MEC) to at least 95% of the employer’s full-time employees (FTEs) and dependents as defined under the ACA, and if one of its FTEs receives subsidized coverage through the Marketplace or public health insurance exchange. The penalty amount is multiplied by the number of FTEs, minus 30. Special rules exist for applicable large employer members which are part of a controlled group.

The Part B Penalty amount is imposed on an employer who fails to offer coverage that meets the minimum value (MV) requirements or fails to be affordable, again as defined under the ACA, with respect to each one of its FTEs who receives subsidized coverage through the Marketplace or public health insurance exchange.

The Department of Health and Human Services (HHS) has released the 2020 inflation-adjusted penalty amounts under the Affordable Care Act’s Employer Shared Responsibility Mandate (Pay or Play):

  • Part A Penalty:                  $2,570 (was $2,500 for 2019)
  • Part B Penalty:                  $3,860 (was $3,750 for 2019)

Specifically, HHS finalized the premium adjustment percentage as 1.2895211380 for the 2020 benefit year, which is then multiplied by the original 2015 penalty amounts (Part A was $2,000 and Part B was $3,000) and rounded down to the nearest multiple of ten.

By way of example, an employer with 200 FTEs who fails to offer MEC to 95% of those employees (and if at least one of those FTEs receives subsidized coverage through the Marketplace or an exchange), the penalty assessed for the year will be $436,900 (200-30 = 170 x $2,570).  The larger the employer, the larger the penalty.  If the same employer offers coverage to 95% of its FTEs but that coverage is not affordable or doesn’t provide minimum value, the penalty assessed will be based on the number of employees who receive subsidized coverage through the Marketplace or an exchange.  If 20 FTEs receive subsidized coverage for each month of the year, the 2020 penalty would be $77,200 ($3,860 x 20).

Affordability Rates for 2020

As discussed above with respect to ACA penalties, an applicable large employer who does not offer affordable employer-sponsored group health plan coverage could face steep penalties.

For 2020, the ACA affordability requirement applies to the lowest-cost self-only coverage option that offers minimum value and must not exceed 9.78 percent of an employee’s household income. Please see Rev. Proc. 2019-29. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf. This is a decrease from 2019 (which was 9.86%).

As it is difficult to determine an employee’s household income, three safe-harbors are available for employers to use to determine affordability:

  1. Form W-2, based on an employee’s W-2 wages as reported in Box 1;
  2. Rate of Pay, based on the employee’s hourly wage rate, multiplied by 130 hours per month; and
  3. Federal Poverty Line, based on the individual federal poverty level as of six months prior to the beginning of the plan year, divided by 12…

The reduction in the affordability percentage may likely mean that employers will have to reduce what employees pay for self-only coverage in order to maintain compliance, depending on what safe-harbor the employer uses.

Employers must be sure to carefully consider the safe harbors available and calculation of the lowest-cost employee coverage that should be charged.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.