ACA Affordability Percentage Goes Way Down (Again) for 2024

By: HUB’s EB Compliance Team

In Revenue Procedure 2023-29, the IRS announced that the affordability percentage for the 2024 calendar year will actually decrease once again to its lowest level ever: 8.39% (down from 9.12% which is the rate for the 2023 calendar year).

Background

As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 8.39% for the 2024 calendar year.

Takeaways

Employers now have the tools to evaluate the affordability of their plans for 2024 Unfortunately, for some employers, a reduction in the affordability percentage will mean that they will have to reduce what employees pay for employee only coverage, if they want their plans to be affordable in 2024.

For example, in 2023 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $142.27 ($12 X 130= 1560 X 9.12%) per month for employee-only coverage. However in 2024, that same employer can only charge an employee earning $12 per hour $130.88 ($12 X 130= 1560 X 8.39%) per month for employee-only coverage, and still use that safe harbor.

Employers with non-calendar year plans will be able to use the affordability percentage for 2023 until the start of their 2024 plan year. Alternatively, they may adjust employee contributions effective January 1, 2024, using the updated affordability percentage. Employers considering this should understand that changes to employee contributions mid-plan year require notice and may allow plan participants to change their elections under the employer’s cafeteria plan.

As we have written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While we won’t know the 2024 FPL until sometime in early 2024, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2023 FPL number as a benchmark for determining affordability for 2024 now that they know what the affordability percentage is for 2024.

Finally, employers need to remember the old “family glitch” was removed starting in 2023. This rule previously prohibited family members of the employee from being eligible for subsidies when the employee was offered affordable, minimum value medical coverage. The removal of the family glitch did not carry new penalty exposure for employers, but it did open the door to subsidy eligibility for family members when the employee’s offer of family coverage is not affordable based on household income. The decrease in the affordability percentage for 2024 may lead an even greater number family members becoming eligible for subsidies.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.