2024 Healthcare Affordability Percentage Released: Huge Employer Cost Increases Possible

The Affordable Care Act set affordability limits on, among others, employer-sponsored group health plans. It also set significant penalties for failure to offer affordable plans, based on the cost of a silver-level plan for employee-only coverage (regardless of an employee’s election for dual or family coverage). That initial amount was that employee-only coverage could not exceed 9.5% of an employee’s household income.

Background: Since employers couldn’t easily determine an employee’s household income, the IRS came up with three safe harbors for employers to use to determine whether coverage was affordable. Initially, the cost of that coverage could not exceed 9.5% of:

  1. The employee’s Box 1 of the W-2 form from the prior year;
  2. The employee’s rate of pay; or
  3. The Federal Poverty Level (FPL) for an individual.

Each year, the FPL is indexed to inflation, as is the 9.5% threshhold. For 2024, that percentage will decrease from 2023’s 9.12% to 8.39%.

For Applicable Large Employers (ALEs–those with 50+ full-time equivalents), this is a significant decrease in the percentage threshhold. For 2024 using the FPL safe harbor, it translates to an employee’s monthly premium cost in a calendar year plan to not exceed $101.94 per month for the employer’s lowest-cost plan meeting ACA’s Minimum Value (60%). Since group health care premiums are expected to rise, this potentially means more of those cost increases will fall upon employers’ shoulders.

Bottom Line: Employers should begin preparing now for determining its plan offerings and cost-sharing strategies for plans renewing in 2024.