ACA Affordability Rates for 2023 Are Announced

Under the Affordable Care Act (ACA), applicable large employers must offer affordable health coverage to full-time employees or be subject to an employer shared responsibility payment. This provision applies to an employer with an average of 50 or more full-time equivalent employees in the prior calendar year.

In 2022, coverage was considered affordable if the employee’s share of the lowest-cost, self-only coverage option cost no more than 9.61% of the employee’s household income. With the release of Rev. Proc. 2022-34, the Internal Revenue Service (IRS) announced that the standard for determining the affordability of employer-sponsored health coverage will decrease to 9.12% for the 2023 plan year.

Simply put, in the coming year, coverage will only be deemed affordable if an employee’s share of the lowest-cost, self-only coverage is no more than 9.12% of household income. This could result in significant savings for employees and may cause many businesses to reduce their required employee contributions.

As explained in IRS guidance (Notice 2015-87, Q&A-12), employers may measure affordability of their coverage applying one or more safe harbors: Form W-2 wages, the employee’s rate of pay or the federal poverty line. The affordability benchmark applies to annual premiums for self-only coverage. If an employer offers multiple health plans, the affordability test is applicable to the lowest-cost option satisfying the requirement for minimum value.

The affordability percentage is indexed in the same manner as the household income percentage. Since the adjusted percentage is applied on a plan year basis, non-calendar year plans will continue to use the 9.61% standard until their new plan year begins.

Moving forward, applicable large employers should be aware of this significant adjustment to the affordability threshold and take it into consideration when setting contributions.

Pacific Federal is a Zenith American company and subsidiary of Harbour Benefit Holdings, Inc.