- On September 7, 2023
The Affordable Care Act’s “affordability percentage” for group health insurance coverage just nose-dived for 2024, and the change will significantly impact both applicable large employers subject to the ACA’s employer shared responsibility requirement (AKA the employer mandate) and their health insurance brokers. Many thought the affordability rate couldn’t go any lower than 2023’s 9.12%. However, on August 23, 2023, the Internal Revenue Service (IRS) released Revenue Procedure Notice 2023-39 declaring the Affordable Care Act’s (ACA) will be 8.39% of an employee’s household income for the 2024 plan year or almost ¾ of a percentage point less than in 2023.
As a reminder, under the ACA, employer-sponsored minimum essential coverage (MEC) is deemed “affordable” if an employee’s required contribution for the lowest-cost, self-only coverage option that meets federal “minimum value” standards does not exceed an annually indexed percentage of the employee’s household income. Employees eligible for minimum value group MEC coverage that meets the affordability standard do not qualify for exchange-based individual coverage premium tax credits or cost-sharing subsidies. ALEs that offer affordable and minimum-value coverage to eligible employees eliminate their employer mandate penalty risk.
The dramatic drop in the 2023 affordability percentage, on top of last year’s almost 1/2 of a percentage point reduction from the 2022 rate of 9.61%, will be a big deal to most ALEs. Many such employers with January 1 renewals may have already set their employee contribution rate for the year ahead. These ALEs will need to check their rates to see if they need to increase the employer contribution level to mitigate employer-shared responsibility penalty liability. Other ALEs are determining what next year’s contribution rate might be now, and they will need to know that the amount they pay toward self-only coverage for the lowest-cost minimum value plan offered will need to meet the new and much lower employee cost threshold.
Prompt and thorough communication and support for brokers with ALE clients will be essential. To compensate for the difference caused by the increase in employer contributions, employers may need to revisit their overall cost and coverage strategy. Planned benefit design enhancements, cost-sharing changes, and even potential wage increases may need to be reviewed. While brokers may be reluctant to provide clients with this bad news, compliance insight and the ability to strategically work with clients to manage what will, to many, be an unexpected cost increase are valuable services.
