The IRS announced the new Affordable Care Act (ACA) affordability percentage of 8.39% for 2024 employer health care plans. The amount represents the greatest annual decrease since its inception.
Under the ACA Employer Mandate, applicable large employers (ALEs) — generally employers with 50 or more full-time and full-time equivalent employees — must offer affordable health coverage that meets minimum value requirements to full-time employees or face potential penalties.
The affordability percentage, which is adjusted annually, is used to determine the threshold at or below which the cost of coverage will be considered affordable. So, this recent change means some health plans may fail to meet an affordability safe harbor and expose employers to penalties.
ALEs have three “affordability safe harbors” to show their coverage is affordable: Rate of Pay, W-2, and Federal Poverty Line. If the amount an ALE charges an employee for self-only coverage satisfies an affordability safe harbor, the ALE will not be liable for an employer shared responsibility payment based on an unaffordable offer of coverage even if its employee qualifies for a premium tax credit.
To maintain affordability in light of the change, employers may need to take on more of the cost of self-only coverage offered to full-time employees to avoid an Employer Mandate penalty.