ACA Affordability Percentage Decreased Significantly for 2023

This E-Alert is of interest to Applicable Large Employers (ALEs) - generally those with 50 or more full-time employees (including full-time equivalent employees). Under the ACA’s employer shared responsibility ("Pay or Play") provisions, large employers may be subject to a penalty if they do not offer affordable coverage that provides minimum value to their full-time employees and their dependent child(ren). 

For plan years beginning in 2023, the Internal Revenue Service has announced that employer-sponsored coverage will generally be considered affordable if the employee's required contribution for the lowest cost self-only health plan offered does not exceed 9.12% of their household income for the year.

This is the most substantial decrease in this percentage since the ACA employer shared responsibility rules were implemented (down from 9.61% in 2022). It is the lowest this percentage has ever been set, at 0.38% below the statutory affordability percentage of 9.5%. As a result, many employers may have to substantially lower their employee contributions for 2023 to meet the adjusted percentage.

Because employers are unlikely to know an employee's actual household income, they may use a number of IRS provided safe harbors to determine affordability of their plan offerings. Adjustments to the affordability percentage are important as failure to get the safe harbor calculation correct can lead to costly penalties.

Marshall & Sterling will work with our impacted clients to determine affordability of plan offerings and any needed contribution adjustments in advance of their 2023 renewal.