ACA Affordability Increases Again for 2027

By: HUB’s EB Compliance Team

In Revenue Procedure 2026-26, the IRS announced that the affordability percentage for the 2027 calendar year will increase to 10.22% (up from the current 9.96% rate for the 2026 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 10.22% for the 2027 calendar year. To avoid potential penalties, employers may base affordability on one of three safe harbors since employee household income is unknown.

The three affordability safe harbor options include:

• Form W-2 (Box 1): Coverage is affordable if the employee's contribution for the lowest-cost, self-only plan that provides minimum value doesn't exceed 10.22% of the employee's Box 1 wages for the 2027 tax year.
• Rate of Pay: For hourly employees, the contribution for the lowest-cost, self-only coverage that provides minimum value can't exceed 10.22% of the employee's hourly rate multiplied by 130 hours per month (hourly rate × 130).
• Federal Poverty Level (FPL): The employee's contribution for the lowest-cost, self-only coverage that provides minimum value can't exceed 10.22% of the FPL published annually by the U.S. Department of Health and Human Services.

Best practice is for employers to review affordability and their selected safe harbor from year to year.

Takeaways

After three consecutive years of decreasing ACA affordability percentages (2022, 2023, and 2024), this is now the third consecutive year the percentage has increased. The 2026 percentage of 9.96% was already an all-time high, and 10.22% for 2027 is now the highest affordability percentage to date.

To illustrate the increase, in 2026 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $155.37 ($12 X 130 = $1,560 X 9.96%) per month for employee-only coverage. In 2027, the employer will be able to charge that same employee up to $159.43 ($12 X 130 = $1,560 X 10.22%) per month and still satisfy the safe harbor.

Employers with non-calendar year plans should continue to use the affordability percentage for 2026 until the start of their 2027 plan year. Alternatively, employers may adjust employee contributions effective January 1, 2027, using the updated affordability percentage. Employers considering this should understand that mid-plan year changes to employee contributions require notice and may allow plan participants to change their elections under the employer's cafeteria plan.

As HUB has written about previously, employers may also use the Federal Poverty Level (FPL) safe harbor to determine affordability. While the 2027 FPL will not be available until early 2027, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. Now that the 2027 affordability percentage has been announced, employers can use the 2026 FPL number as a benchmark for determining 2027 affordability.

Finally, employers should remember that 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 increase in the affordability percentage for 2027 may cause some family members who were eligible for subsidies in 2026 to no longer qualify in 2027.

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.