The employee benefits 2024 open enrollment season is quickly approaching and, with newly released IRS guidance, employers should be careful to ensure the health plan they offer employees is considered affordable. According to IRS Rev. Proc. 2023-29, the new affordability threshold is decreasing for the second time in two years, from the 2023 plan-year level of 9.12% to the significantly lower 8.39% of an employee’s household income. This affordability percentage affects individuals’ eligibility for federally subsidized coverage on the Exchange, but more importantly, an employer’s potential liability for fines due to the Affordable Care Act’s (“ACA”) Employer Shared Responsibility provisions.

Employers who use the safe harbor dollar amount to set employee contributions will need to reduce the current employee contributions for the lowest-cost, self-only plan option in 2024. For 2024 calendar-year plans using this safe harbor, the required employee contribution cannot exceed $101.94 per month. Plans that do not coincide with the calendar year may wish to wait for the U.S. Department of Health and Human Services (“HHS”) to publish the 2024 Federal Poverty Guidelines before setting their employee contribution amount.

Based on the three different safe harbor methods (as explained below) employers in the Pacific NW, where the minimum wage is higher than the federal minimum of $7.25 per hour, using the Rate of Pay safe harbor method would allow for greater contributions.

ACA Affordability Standards

As a reminder, under the ACA an Applicable Large Employer (“ALE”) must offer affordable, minimum-value coverage to substantially all (i.e., 95%) full-time employees (who average 30 hours per week) and their dependents. An ALE is an employer who averages 50 or more full-time and full-time equivalent employees in the prior calendar year.

An employer can choose from three safe harbors to determine whether their benefit offering is considered affordable:

• W-2 Wages: In this method, the employee contribution is deemed affordable if it does not exceed 8.39% of that employee’s Form W-2 wages from Box 1.
• Rate of Pay: In this method, an hourly employee’s contribution will be considered affordable if it does not exceed 8.39% of that employee’s hourly rate x 130 hours. For a Portland-based minimum wage hourly worker ($15.45/hour), the maximum affordable contribution would be $168.51 per month. For a salaried worker, the employee contribution is considered affordable if it does not exceed 8.39% of that employee’s monthly salary.
• Federal Poverty Line (“FPL”): As mentioned above, 8.39% of the declared FPL, which is currently $14,580 for the mainland United States = $101.94 per month.

Employer Shared Responsibility Payments

“Part A Penalty” – If an ALE fails to offer minimum essential coverage to substantially all full-time employees and one full-time employee purchases individual coverage from the Exchange and receives a premium subsidy, the employer will be penalized $247.50 per full-time employee (less the first 30 employees) for each month they failed to offer minimum coverage. As an example, an employer with 50 full-time employees that fails to offer at least 95% of them (48) minimum essential coverage could be penalized $59,400 ((50 employees less the first 30)  x $247.50 x 12) if just one employee purchases insurance on the Exchange and receives a premium subsidy.

“Part B Penalty” – If an ALE fails to offer affordable minimum essential coverage and one full-time employee purchases individual coverage from the Exchange and receives a premium subsidy, the employer will be penalized $371.66 per month for each individual that receives the premium subsidy. This is called the “B penalty” from §4980H(b).

What Employers Need to Do

As employers start receiving insurance plan renewal rates and are looking toward 2024 Open Enrollment, employers should review the above safe harbors and determine how much to charge a single employee for the lowest-cost plan offering.

For Oregon and Washington employers where minimum wages are more than double the federal wage, using the Rate of Pay safe harbor method would allow employers to charge approximately $50 – $100 more per month (depending on minimum wage in the city or county) than the $101.94 allowed by using the FPL safe harbor.