If you are a large employer subject to the Affordable Care Act’s employer mandate, then one of the requirements for the coverage that is offered to employees is that at least one option for employee-only coverage must be “affordable.” What is affordable coverage is determined by looking at the employee’s household income (which can be determined under difference safe harbor methods) and multiplying it by the percentage announced each year by the IRS. The cost to the employee for the coverage must be less than the maximum percentage for that year, or the employer can be subject to significant penalties.
This maximum percentage is generally announced mid-year prior to the year the new percentage is effective, giving the employer time to evaluate and set the premiums for the next year. The IRS just announced the affordability maximum percentage for 2024 will be 8.39%. This is down from the 2023 percentage (which was 9.12%). What this means is that the employee’s cost for premiums in 2024 will need to be lower than in 2023, even in the unlikely event that the overall cost of premiums remains unchanged.
For example, assuming an employee household income of $40,000, in 2023 the maximum premium for at least one employee-only coverage option would have been $304 per month. Assuming the same income, the maximum in 2024 would be $279.67 per month. If the employer in this example keeps the lowest cost employee-only option at $304 per month for 2024, then it will be vulnerable to penalties for not offering affordable coverage.
It is always a best practice to review premiums for affordability prior to open enrollment considering the many variables that can change each year: the overall cost of the premiums, employee household income, and the maximum percentage for affordability. But for years when the affordability percentage goes down, it is imperative that premiums be reviewed because a failure to adjust the premiums will likely result in unaffordable coverage.