Planning for Open Enrollment? Note the ACA Affordability Threshold Drop

Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

On August 23, the Internal Revenue Service issued Rev. Proc. 2023-29, announcing that the Affordable Care Act (ACA) affordability threshold will be 8.39% for plan years beginning in 2024, a substantial decrease from the 9.12% affordability threshold set for plan year 2023. This marks the largest change yet in the affordability thresholds year-over-year. The affordability threshold is used to determine whether employer-sponsored health coverage is affordable for purposes of the ACA’s employer-shared responsibility provisions.

Since 2014, the ACA regulations have provided that coverage is considered affordable if the employee premium for the lowest, self-only coverage option does not exceed a certain percentage of an employee’s household income. That threshold percentage has been adjusted each year since 2014 but has always remained above 9% until this latest announcement.

The decrease in the 2024 affordability threshold will likely force employers to reduce the cost of their lowest-cost, self-only coverage option in order to avoid potential ACA penalties. The chart below provides an example of how the change in the affordability threshold will reduce the maximum premium employers may charge employees for the lowest cost, self-only coverage option on a monthly basis using the thresholds for this year (2023) versus next year (2024). The example assumes an employee earns $20/hour and works 40 hours per week ($41,600 annually).

Safe Harbor Maximum Monthly Employee Premium Considered Affordable
  2023 2024
W-2 Income $316.16 $290.85
Rate of Pay $237.12 $218.14
Federal Poverty Line* $103.28 $101.94
*Based on the Federal Poverty Line of $14,580.

In preparing for open enrollment, applicable large employers subject to the ACA’s employer-shared responsibility provisions should work with their benefits broker and legal counsel to ensure the coverage offered to employees for the 2024 plan year meets the new affordability threshold. Unaffordable coverage could expose an applicable large employer to a potential ACA penalty if any employee obtains subsidized coverage on a state or federal exchange.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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