The 2024 health plan affordability threshold* is dropping next year, according to the recent announcement by the IRS. This change, detailed in IRS Rev. Proc. 2023-29, marks a significant decrease in the affordability threshold compared to 2023 and is the lowest since the inception of the Affordable Care Act (ACA).

Starting in 2024, the health plan affordability threshold will be set at 8.39% of an employee’s household income. This figure is notably lower than the 9.12% threshold in the previous year.

Employers need to be aware that this threshold, which impacts potential liability for ACA shared-responsibility penalties, is recalculated annually based on health plan premium growth relative to income growth, using national health expenditure data from the Centers for Medicare & Medicaid Services.

Further, this adjusted percentage applies on a plan-year basis. Consequently, for plans operating on a calendar year basis, the 9.12% threshold will continue to be relevant until the commencement of their new plan year. Applicable large employers have the option to rely on various safe harbors when assessing the affordability of their coverage. These safe harbors include an employee’s W-2, an employee’s rate of pay, and the federal poverty level.

Should an employer’s coverage fail to meet the affordability criteria according to one of these safe harbors, and a full-time employee qualifies for a premium tax credit for marketplace coverage, the employer may become subject to an employer shared responsibility payment.

For 2024 calendar-year plans utilizing the federal poverty line (FPL) affordability safe harbor, the maximum required employee contribution cannot exceed 8.39% of the FPL for a particular area, which equates to $101.94 per month for the mainland U.S. This represents a decrease from the $103.28 figure in 2023. And for employees in Alaska, the rate is $127.31 per month, while in Hawaii, it’s $117.25 per month.
It’s worth noting: employers using the exact safe harbor dollar amount to set employee contributions will need to adjust the current employee contribution for the lowest-cost, self-only option for the 2024 plan year.

To ensure compliance with the ACA’s affordability limit under the applicable safe harbor, employers should review the required employee contribution for 2024 coverage. This adjustment in the affordability threshold is a key consideration for employers as they plan for the upcoming year.

The “health plan affordability threshold” is defined as “the limit on how much an employee may be asked to pay for health insurance based on their income, in order to ensure it’s affordable … So, if the cost exceeds this limit, they may be eligible for financial assistance.”