Medcom Blog


Navigating the Complexities of the Affordable Care Act

On Tuesday, our senior legal counsel, Michelle Barki, laid out some tough situations related to the Affordable Care Act (ACA). We understand there is a lot of confusion around the ACA, and we’re here to help! Below we’ve listed a few situations each followed by guidance from our senior legal counsel.

Your clients are using the Federal Poverty Safe Harbor and have never had to pay a 4980H(b) penalty, but they pay a lot in premiums. Now, they want to go to the W-2 Method and pass more of the cost of insurance on to the employees, but they also want a guarantee that they will never face a §4980H(b).

How do you respond?

The W-2 Method cannot be considered 100% safe. The W-2 Method is based on the current tax year's earnings and what will appear in box 1 of the W-2. There are many variables at play, such as…

  • If there is a reduction in hours, affordability can be affected
  • If there is an unpaid leave of absence or FMLA, affordability can be affected
  • If you hire someone mid-year, the calculation of the adjusted W-2 can cause the plan to be unaffordable
  • Contributions to 401K can affect affordability

A client has a long-term employee, full-time since their hire date in May 2010. The employee advised that as of September 1, 2021, they can only work 20 hours per week; therefore, they’ll be part-time, and benefits will terminate at midnight on August 31, 2021.

Your advice to the client?

You cannot immediately terminate the coverage even if there is a reduction in hours.

The employer has two choices; the first is the easier of the two:

  1. Look at the last standard measurement period.  If they averaged over 130 hours/month, then continue the plan to the end of the stability period.  For example, on a calendar year plan, they would pay through December 31, 2021.
  2. Do a monthly measurement for the next three months. If for each of those three months they worked less than 130 hours, then benefits can be terminated in that fourth month.  But the employee is now placed in a monthly measurement period for the rest of the stability period and the next full standard measurement period. So, make sure they remain part-time or immediately offer benefits.

The Affordable Care Act states I must offer my full-time employees benefits by the 91st day of work. Each year, we hire a group of employees and weed them out during an intensive 30-day orientation period.

Do I have to include these 30 days in my 90-day waiting period for those that passed muster?

It depends.

The ACA states a one-month bona fide orientation period is reasonable. It was envisioned that the employer and employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin.

The 90 days commences after the orientation period. Whether it is a bona fide orientation period is based on the facts and circumstances.

A client comes to you with the dreaded 226J letter. They are confused; they offered affordable coverage for 95% of their FTEs using the W-2 Method. They had ten employees who went to the Marketplace and apparently got a subsidy, and now the client got a letter saying they owe $24,650!

How can you help!?

Along with the 226J letter, the IRS also provides Form 14765 which lists the individuals who went to the Marketplace and got a subsidy. Now, at the top of Form 14765, it states:

“Any months that shows XF, XG, or XH is due to a determination that you do not qualify for the Safe Harbor being claimed. If you still think the Safe Harbor applies, provide your computation with your written request for reconsideration.”

You should never ignore a letter from the IRS, no matter the circumstances. The client must reply to the IRS and tell them how they did the calculations.

A client comes to you and indicates that they do the ACA reporting themselves. They have under 250 forms so they can mail them to the IRS. You talk to them and realize they don’t understand the coding, yet they indicate the IRS allows for a “good faith effort” so it doesn’t really matter.

How do you move forward?

They really should consider an ACA reporting solution because it’s likely the ACA “good faith effort” is going away.

Last year, the IRS granted an automatic extension and provided yet another “Good Faith Year.” However, they noted in 2019 they asked for comments as to whether changes or extensions were needed, and if there was a reason to continue good faith (2019-63).

According to the IRS, they received little response. See our blog from last month discussing the potential for no more “good faith” and other guidance from the IRS.

The IRS is also looking at reducing the number of forms to 100, so if you have over 100 you will have to file electronically in the coming year.

A client is getting ready to establish affordability for 2022. They are excited because affordability in 2021 was based on 9.83%. They believe the percentage will go up.

How do you respond?

A couple of weeks ago, the IRS announced the new affordability rate plummeted to 9.61% which means the Federal Poverty Guideline Maximum will be $103.14 in 2022.


With the cost of insurance going up and affordability going down we are in for a tough 2022. There’s a lot of complexities associated with the ACA and the end of the year is approaching quickly so make sure you have solutions in place for your clients.

If you have any questions regarding our ACA solutions, feel free to reach out to our ACA sales expert, Tom Neal!