IRS Announces 2024 Health Plan Affordability Threshold

Kathryn Mayer By Kathryn Mayer August 30, 2023

​The 2024 health plan affordability threshold is dropping next year.

The IRS announced that the 2024 health plan affordability threshold—which is used to determine if an employer's lowest-premium health plan meets the Affordable Care Act's (ACA's) affordability requirement—will be 8.39 percent of an employee's household income. That's down from this year's 9.12 percent figure. The information was detailed in IRS Rev. Proc. 2023-29, which was released last week.

The 2024 threshold is a significant decrease from 2023, and it is the lowest affordability threshold since the ACA was implemented.

The affordability threshold, which affects employers' potential liability for ACA shared-responsibility penalties, is adjusted annually based on health plan premium growth relative to income growth using national health expenditure data from the Centers for Medicare & Medicaid Services.

The adjusted percentage applies on a plan-year basis, so plans will continue to use 9.12 percent to determine affordability in 2024 until their new plan year begins, if it does not begin at the start of the calendar year.

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, according to a compliance alert by insurance firm Woodruff Sawyer.

For 2024 calendar-year plans using the federal poverty line (FPL) affordability safe harbor, the required employee contribution cannot exceed 8.39 percent of the FPL for a particular area—$14,580 for the mainland U.S. That comes out to $101.94 per month, down from $103.28 in 2023. For employees working in Alaska, the rate is $127.31 per month, while the rate in Hawaii is $117.25 per month.

"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, a partner at HR consultancy Mercer in New York City, and Cheryl Hughes, a principal in the firm's Washington, D.C., office, explained 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, Smith and Hughes wrote.



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