The IRS has recently announced a significant change in the Affordable Care Act (ACA) affordability percentage for employer healthcare plans in 2024. In Revenue Procedure 2023-29, the IRS stated that the new affordability percentage will be 8.39%. This is the largest decrease in the affordability percentage since its inception.
This change has important implications for employers and their health plans. If a health plan fails to meet the affordability safe harbor, employers may be exposed to penalties under IRC Section 4980H(b). The safe harbors include the rate of pay, W-2, and federal poverty line (FPL) methods for determining affordability.
Under IRC Section 36B, individuals are eligible for a premium tax credit if their employer does not offer them affordable coverage that provides minimum value. Previously, family coverage was considered affordable if the employee’s self-only coverage was affordable. However, the new regulations now require employers to consider the affordability of family coverage.
Under IRC Section 4980H, employers can be responsible for employer-shared responsibility payments if they fail to offer full-time employees and their dependents minimum essential coverage, or if the coverage offered is unaffordable. An employer-shared responsibility payment is only triggered when a full-time employee enrolls in coverage through a state or federal healthcare marketplace and qualifies for a premium tax credit.
To demonstrate that their coverage is affordable, employers can use the three affordability safe harbors. These safe harbors allow employers to show that the amount they charge for self-only coverage satisfies the affordability requirement. If an affordability safe harbor is met, the employer will not be liable for an employer-shared responsibility payment.
The affordability percentage is indexed annually and is used to determine if an employer’s self-only coverage meets the ACA’s affordability requirements. The 2024 affordability percentage of 8.39% represents a decrease from the previous years (9.12% in 2023 and 9.61% in 2022). This means that employers will need to adjust their premiums to ensure they meet the new affordability threshold.
Employers who use the federal poverty line safe harbor will need to charge an employee-only premium rate of $101.93 or less for plans beginning in 2024. Employers using the rate of pay or W-2 safe harbors will also need to evaluate their premiums in light of the 8.39% threshold.
In light of these changes, employers should carefully review their health insurance premiums with their brokers or consultants. If the 2024 health plan rates remain the same as 2023, an employer may end up with an unaffordable offer of coverage. To maintain affordability, employers may need to lower their health plan rates in 2024.
Overall, employers must stay informed about these changes in the ACA affordability percentage and take appropriate measures to ensure compliance with the law.
