ACA’s affordability threshold will be lower than ever before in 2024

By Anita Byer, Setnor Byer Insurance & Risk

The Affordable Care Act’s affordability threshold will be lower in 2024 than ever before. The Internal Revenue Service recently announced that the affordability threshold for employer-sponsored group health plans that begin in 2024 will be 8.39 percent. The affordability threshold, which is currently 9.12 percent, affects an employer’s potential liability for shared responsibility assessments (the pay-or-play penalty) under the ACA. The decreasing threshold means that an affordable group health plan in 2023 could become “unaffordable” in 2024, despite identical pricing and employee contribution requirements. So, employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) must review, and possibly adjust, employee cost and contribution requirements for group health insurance coverage in 2024.

Applicable Large Employers are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid an ACA shared responsibility assessment (penalty). Affordability is calculated as a percentage of household income. To be affordable in 2024, an employee’s required contribution for the lowest-cost, self-only coverage option offered by their employer (regardless of which coverage option is selected) cannot exceed 8.39 percent of that employee’s household income.

Since employers typically do not know their employees’ household incomes, ALEs can use one of the ACA’s affordability safe harbors to determine the maximum amount an employee can be required to pay without exceeding the affordability threshold. For example, assume Sam works 40 hours per week for 52 weeks, earning $12 per hour. The most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer during the 2024 plan year is:

• $174.51 per month (W-2 Safe Harbor Method);
• $130.88 per month (Rate of Pay Safe Harbor Method); or
• $101.94 per month (Federal Poverty Line Safe Harbor Method [48 Contiguous States 2023]).

If Sam earned $15 per hour, Sam’s required contribution for the lowest-cost, self-only coverage option cannot exceed:

• $218.14 per month (W-2 Safe Harbor Method);
• $163.61 per month (Rate of Pay Safe Harbor Method); or
• $101.94 per month (Federal Poverty Line Safe Harbor Method [48 Contiguous States 2023]).

Note that the basis on which the ACA’s affordability threshold is applied is plan-year, not calendar-year. In other words, next year’s affordability threshold (8.39 percent) will apply on the first day of the new plan year in 2024, which could be January 1, July 1, or any other day in 2024. For non-calendar-year plans, the current affordability threshold (9.12 percent) will continue to apply until the new plan year begins in 2024.

The consequences for failing to satisfy the ACA’s affordability requirement can be severe. Applicable Large Employers need to review, and possibly adjust, next year’s group health plan offerings, pricing options, cost-sharing structure, and in some cases, compensation levels, to ensure compliance with the ACA’s affordability requirement.

The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance & Risk.