Employers could take on added shared responsibility for the health care of some workers next year, since the IRS has announced that the new 2024 health plan affordability threshold – used to determine if an employer’s lowest premium health plan meets the Affordable Care Act’s affordability requirement – will be lowered to 8.39% of an employee’s household income for 2024.
The ACA benchmark for determining the affordability of employer-sponsored health coverage will drop significantly for the new plan year, down from the 2023 plan year level of 9.12%. This affordability percentage can affect individuals’ eligibility for federally subsidized coverage from a public exchange, as well as employers’ potential liability for shared responsibility assessments.
Under the ACA, employer-sponsored minimum essential coverage is affordable if an employee’s required contribution for the lowest-cost, self-only option with minimum value does not exceed an annually indexed percentage of the employee’s household income. Employees and their family members eligible for minimum-value employer-sponsored minimum coverage that meets the affordability standard cannot receive premium tax credits or cost-sharing reductions for public exchange coverage.
“This will mark the second time in three years that the federal poverty level (FPL) safe-harbor dollar amount has decreased for calendar-year plans,” according to a report from Mercer. “As a result, employers that use the exact safe-harbor dollar amount will have a smaller employee contribution for the lowest-cost, self-only option for the 2024 plan year than for the 2023 plan year. The same is possible for non-calendar-year plans beginning in 2024, depending on the 2024 FPL amounts issued in January or February 2024.”
An applicable large employer may rely on one or more safe harbors in determining if coverage is affordable — an employee’s W-2, an employee’s rate of pay and/or the federal poverty level. If the employer’s coverage is not affordable under one of the safe harbors and a full-time employee is approved for a premium tax credit for marketplace coverage, the employer may be subject to an employer shared responsibility payment.
“Importantly, employers that use the exact safe harbor dollar amount to set employee contributions will need to reduce the current employee contribution for the lowest-cost, self-only option for the 2024 plan year,” Dorian Z. Smith and Cheryl Hughes of Mercer wrote in an alert.
Employers should review the required employee contribution for 2024 coverage if they plan to meet the ACA’s affordability limit under the applicable safe harbor, they added.