Under the ACA, employer-sponsored minimum essential coverage (MEC) is affordable if an employee’s required contribution for the lowest-cost, self-only option with minimum value does not exceed an annually indexed percentage of the employee’s household income. Employees and their family members eligible for minimum-value employer-sponsored MEC that meets the affordability standard cannot receive premium tax credits or cost-sharing reductions for public exchange coverage.
To determine liability for play-or-pay assessments, three employer safe harbors allow replacing household income in the affordability calculation with one of these figures:
- Form W-2 wages
- Rate of pay
- Federal poverty line (FPL)
As explained in Rev. Proc. 2014-37, the original 9.5% affordability percentage is annually adjusted after 2014. For calendar years 2022 and beyond, the Notice of benefit and payment parameters for 2022 includes the method of calculating the premium adjustment percentage.
Indexing of the 2023 affordability percentage is based on premium growth rates relative to income growth rates from 2013 to 2023, using the most recent National Health Expenditure Accounts (NHEA) income and premium data projections. Given those projections, the 2024 affordability percentage will be significantly lower than the 2023 level.
Employers should review the required employee contribution for 2024 coverage if they plan to meet the ACA’s affordability limit under the applicable safe harbor. For the many plans using the FPL affordability safe harbor, the considerations differ for calendar- and noncalendar-year plans.
This will mark the second time in three years that the FPL safe-harbor dollar amount has decreased for calendar-year plans (down from $103.28 in 2023). As a result, employers that use the exact safe harbor dollar amount will have a smaller employee contribution for the lowest-cost, self-only option for the 2024 plan year than for the 2023 plan year. The same is possible for noncalendar-year plans beginning in 2024, depending on the 2024 FPL amounts issued in January or February 2024.
FPL safe harbor for calendar-year plans
FPL safe harbor for noncalendar-year plans
Noncalendar-year plans may use the FPL in effect within six months before the first day of the plan year. That means noncalendar-year plans starting in February to July 2024 (if the 2024 FPL is issued in January) or noncalendar-year plans starting in March to August 2024 (if the 2024 FPL is issued in February) may use either the 2023 FPL of $14,580 — resulting in a FPL affordability safe harbor of $101.94 per month — or the 2024 FPL. These noncalendar-year plans would likely benefit from waiting to use the 2024 FPL since it will likely exceed the 2023 FPL and yield a higher FPL safe harbor contribution limit [(8.39% x 2024 FPL) ÷ 12]. On the other hand, depending on when the 2024 plan year starts and the 2024 FPL is issued, waiting for the 2024 FPL may not be practicable.
The adjusted percentage applies on a plan-year — not calendar-year — basis. This means noncalendar-year plans will continue to use 9.12% to determine affordability in 2024 until their new plan year starts. As described above, noncalendar-year plans won't be able to calculate the likely higher FPL safe harbor contribution limit for plan years beginning after Jan. 1, 2024, until the Department of Health and Human Services (HHS) issues the 2024 FPL guidelines. As a reminder, for 2023 noncalendar-year plans using the mainland US FPL affordability safe harbor, the required employee contribution cannot exceed $110.81 per month, calculated as (9.12% for 2023 x $14,580 FPL in 2023) ÷ 12, rounded to the nearest penny.
- Rev. Proc. 2023-29 (IRS, Aug. 23, 2023)
- Poverty guidelines for 2023 (HHS, Jan. 19, 2023)
- Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2024 benefit year (Centers for Medicare & Medicaid Services, Dec. 12, 2022)
- Employer shared-responsibility provisions (IRS, Sept. 29, 2022)
- Q&As on employer shared-responsibility provisions under the Affordable Care Act — affordability (see Q&A-40) (IRS, Aug. 16, 2022)
- Notice 2015-87 (IRS, Feb. 16, 2015)
- Rev. Proc. 2014-37 (IRS, July 24, 2014)
Mercer Law & Policy resources
- 2023 federal poverty levels can impact ESR affordability (Jan. 23, 2023)
- 2023 quick benefit facts (Jan. 20, 2023)
- Top 10 compliance issues for health and leave benefits in 2023 (Section 9: Other ongoing ACA concerns) (Oct. 25, 2022)
- Affordability percentage for employer health coverage will shrink in 2023 (Sept. 14, 2022)
- Employers face ongoing liability for ACA play-or-pay assessments (March 2, 2020)
- IRS outlines how individual-coverage HRAs can meet ACA employer mandate (Oct. 29, 2019)