Mercer projects the “required contribution percentage” that determines the affordability of employer-sponsored health coverage under the Affordable Care Act (ACA) will rise to 9.7% of an employee's household income — or an applicable employer shared-responsibility (ESR) affordability safe harbor — for the 2023 plan year. This marks an increase from the 2022 plan-year level of 9.61%. This ACA affordability percentage can affect individuals’ eligibility for federally subsidized coverage from a public exchange, as well as employers’ potential liability for ESR (or “play or pay”) assessments. Mercer also projects that the 2023 play-or-pay federal poverty line (FPL) affordability safe-harbor amount for calendar-year plans will increase to $109.85 per month — a fairly significant hike from the 2022 amount of $103.15.
The projected ACA affordability percentage is based on figures in the recent Centers for Medicare & Medicaid announcement of how much the premium growth rate exceeded the income growth rate for 2013 to 2022. This projection assumes the Build Back Better Act (or some slimmed-down version of the bill) either isn’t enacted or doesn’t include the provision reducing the ACA affordability percentage to 8.5%. The official IRS announcement of the ACA affordability percentage will come later this year.
The projected 2023 play-or-pay FPL affordability safe harbor amount for calendar-year plans reflects the 2022 poverty guidelines recently released by the Department of Health and Human Services. Those guidelines set the 2022 FPL at $13,590 (up from $12,880 in 2021) for a person living in the mainland US, but $15,630 in Hawaii and $16,990 in Alaska. The 2023 projection of the monthly FPL affordability safe harbor amount for calendar-year plans is calculated as (9.7% x $13,590 FPL for 2022) ÷ 12, rounded to the nearest penny.
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:
Under the ACA, the FPL can affect play-or-pay assessments in two ways:
2022 play-or-pay FPL affordability safe harbors. HHS issued updated FPL figures effective Jan. 12 that will apply for 2023 calendar-year plans and plans with a 2022 noncalendar-year. Employers with calendar-year plans can’t rely on those higher FPLs for 2022 affordability testing. Instead, 2022 calendar-year plan sponsors must use the 2021 FPL amounts. As a result, the 2022 FPL affordability safe-harbor monthly employee contribution limits for the lowest-cost, self-only MEC with minimum value are as follows: