The IRS recently announced the ACA affordability threshold for the 2024 tax year and it’s significantly lower than last year’s, which was a historic low at the time.
In IRC Rev. Proc. 2023-29 the agency establishes the 2024 ACA affordability threshold as 8.39%. This is a significant decline from 2023’s 9.12% and an even greater drop from 2022’s 9.61%.
By now it’s evident that a trend is emerging with regard to ACA affordability and it’s likely due to changes first introduced via the American Rescue Plan. The $1.9 trillion plan, which passed in 2021, expanded Premium Tax Credits (PTC) eligibility and ensured that the maximum contribution towards the benchmark healthcare option would not be more than 8.5% of an individual’s household income.
Now in 2024, it appears that the continuing decline in ACA affordability is a delayed response to the American Rescue Plan’s 8.5% contribution maximum, which we previously speculated would happen in an analysis last year.
As a result of the lower affordability threshold for 2024, employers providing health coverage to their full-time ACA employees must ensure that employee contributions do not exceed 8.39% of their total household income.
In this post, we’ll dive into the intricacies of the new ACA affordability threshold and the potential impact it has on both employers and their employees.
Key Elements of the 2024 ACA Affordability Decrease
The 2024 ACA affordability threshold is a critical detail for employers seeking to comply with IRS regulations, notably the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers must offer affordable Minimum Essential Coverage that also meets Minimum Value to at least 95% of their full-time workforce and their dependents.
Failure to meet the affordability portion of the healthcare law can result in IRS Letter 226J penalties, which the agency is currently issuing for the 2021 tax year.
If an employer doesn’t provide affordable coverage for the 2024 tax year, they may face a 4980H(b) penalty, amounting to an annualized $4,460 per employee. For more information on ACA penalties, including how to avoid them, download the ACA 101 Toolkit.
Considerations for Employers
As we covered earlier in this post, the affordability threshold plays a critical role in determining employee contribution maximums for employer-sponsored health coverage. With the threshold decreasing for the 2024 tax year, organizations will need to contribute more toward the cost of employee monthly premiums.
To prepare for this, employers should evaluate their existing health plans to ensure they align with the 2024 ACA affordability threshold.
Best practices encourage performing a comprehensive analysis of plan offerings and their costs. Start by comparing the cost of 2023 and 2024 premiums, deductibles, co-pays, and any other related health plan expenses.
Next, reference historical employee income data to see how it stacks up against the new plan costs. This will help you identify any potential affordability challenges for your employees.
Employers should also provide detailed information about how the 2024 ACA affordability decrease may affect their employees’ health coverage and what plan options will be available as a result. Consider providing resources to help employees understand the impact of the changes to their budgets.
If you need assistance either evaluating health plans for next year or developing a system for communicating plan changes to your employees, contact Trusaic.
Implications for Employees
On the flip side, the 2024 ACA affordability decrease directly affects individuals seeking health coverage through their employers. While this change may appear advantageous at first glance, it’s essential to recognize the possible implications for employees.
For employees, the 8.39% limit on employee-only health coverage can lead to cost savings, since the employer will be contributing more towards the monthly premium.
Despite any cost savings, however, the decrease in affordability may also influence employees’ health plan options. With employers picking up more of the health plan’s cost, the quality of the plans may change and as such, key benefits may no longer be included. Employees will need to evaluate different coverage options to ensure they receive the best value for their money.
Get Help with ACA Affordability
In the ever-changing healthcare landscape, staying informed about the latest developments is crucial for employers. The 2024 ACA affordability decrease to 8.39% is a significant change in the healthcare landscape that employers must navigate.
For more information on ACA affordability, compliance with the Employer Mandate, and best practices for minimizing IRS penalty risk, contact Trusaic to learn about our full-service software solution, ACA Complete.
To see real-world examples of various industries calculating ACA affordability for the 2024 tax year, download the Safe Harbor Playbook For Calculating ACA Affordability below.
