You May Need to Lower Employees’ Premiums to Keep Your Plan Affordable Under the ACA

For the third year in a row, the IRS adjusted the affordability percentage used for the shared responsibility penalties down. The IRS recently announced that the affordability percentage for 2024 will be 8.39%. This is down from 9.12% in 2023. For employers this means that if you set your employee premium costs last year right at the affordability threshold, your plan will no longer be affordable if you charge employees the same amount in 2024 as you did in 2023.

If you are a large employer required to provide health plan coverage to avoid the employer mandate shared responsibility penalties, it is prudent to reevaluate your health plan contribution structure each year before open enrollment to ensure that your plan is still “affordable.” Since the passage of the ACA, it is no longer a strategy to set it and forget it with your premiums. Most employers were diligent about calculating affordability in the first few years the shared responsibility penalties were in effect, but we have seen some start to get lax on continuing to do it each year. Since the change in Administration, we are already seeing an increased focus on ACA compliance and expect to see a ramp up in employer penalty notification. A failure to consider whether your plan is affordable when passing through any premium increases could result in an unintended penalty for each employee who enrolls in exchange coverage and qualifies for financial assistance.

In order to be considered to have offered an affordable plan, an applicable large employer must have at least one health plan option where the employee’s share of single coverage is less than the affordability percentage multiplied by the employee’s household income. The IRS adjusts the affordability percentage each year and for 2024 the cost of single coverage must be less than 8.39% of an employee’s household income in order to be affordable. This 8.39% is the same percentage that employers need to use when relying on the federal poverty level, rate of pay, or W-2 affordability safe harbor. The 8.39% is down from the 2023 percentage, which was 9.12% and even further down from the 2022 and 2021 percentages, which were 9.61% and 9.83%, respectively. Because this percentage went down again, employers could end up with an unaffordable plan this year when it was affordable last year even if everything else stayed exactly the same. For example, if using the rate of pay safe harbor, premiums for an employee making $20/hour were affordable in 2023 if they were less than $237.12. In 2024, for that same employee, the premium is affordable if less than $218.14. While this is a fairly steep decrease per employee to stay affordable, the change is even steeper if you consider that the plan would have been affordable in 2021 for that same $20/hour employee if the premium was less than $255.58.

If you need assistance in determining whether your plan is affordable or which safe harbor would be best, please contact any member of the Bricker Graydon employee benefits team.

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