The Indexing Implications of the 2012 Federal Poverty Level Guidelines

A little-discussed portion of PPACA is the indexing of the affordability measurement. Under PPACA, for an employer’s plan to be affordable, the employee cost of the single coverage cannot exceed 9.5% of an employee’s household income (AGHI). In the initial years following 2014, this percentage will be adjusted to reflect the excess of the rate of premium growth over income growth for the prior year as determined by the Secretary of Health and Human Services.

On January 26, 2012, the Department of Health and Human Services published the 2012 Federal Poverty Guidelines (FPL). At that time, the single guideline rose to $11,170, which is up 2.57% over the 2011 single guideline.  That’s a 464.1% growth in the rate of change.

This could have profound ramifications for the indexing of the 9.5% affordability threshold.

As you advise your clients on plan strategy, you may be able to look to the FPL growth as an indicator of income growth. The FPL is a simplified version of the federal poverty thresholds set by the Census Bureau and is used mainly for administrative purposes, such as determining financial eligibility for subsidies in the State Insurance Exchanges. The poverty thresholds set by the Census Bureau act as the starting point for the FPL calculation, with adjustments made based on the prior year’s Consumer Price Index for Urban Consumers (CPI-U).

On January 25, 2012 the Federal Reserve issued a release stating a long term goal of 2% inflation annually, “as measured by the annual change in the price index for personal consumption expenditures” (the CPI-U). In 2010 and 2011 the FPL increased 0% and 0.55% respectively. The recent increase of 2.57% more closely aligns with the Fed’s stated inflation goal.

Regardless, the cost of insurance is increasing at a faster rate than income. In the absence of indexing, more individuals would become eligible for subsidies on the exchange every year.  That, in turn, would cause stress on the viability of the exchanges. With the provision in place, as income growth increases more slowly than premium cost, the affordability percentage will adjust to reflect the excess.

The Supreme Court will issue rulings soon. Regardless of the outcome, it's vital that we understand the consequences and the details of this legislation, and how it may affect your clients. We will continue to work hard to lead the way through PPACA, including the indexing of the affordability measurement.

Jennifer Riley, PHR

CHROME Consultant

www.continuoushealth.com

This article was first featured in the March 27th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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