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Tighter Margins: IRS Makes It More Difficult to Meet ACA Affordability Safe Harbors in 2024

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We have reported previously on the importance of understanding the coverage and reporting rules of the Affordable Care Act.  In particular, Code Section 4980H imposes penalties on large employers for failure to offer minimum essential coverage to 95% or more of their full-time employees (and dependents) or to provide affordable, minimum value health insurance.

Whether coverage is “affordable” is determined by reference to the lowest cost, self-only option available under the employer’s health plan.  Applicable guidance provides certain safe harbors with respect to affordability, the amounts of which fluctuate year-to-year due to cost-of-living adjustments and other factors.

The IRS recently published Revenue Procedure 2023-29, which lowers the affordability threshold from 9.12% in 2023 to 8.39% in 2024.  This means that premiums will likely need to be lower in 2024 to remain affordable.  For instance, employers that rely on the federal poverty line affordability safe harbor may charge an employee premium up to $101.94 in 2024, which represents a decrease from $103.28 in 2023.  Although the dollar amount may appear small, penalties for noncompliance can be significant.

Based on this updated guidance, employers may wish to evaluate their health plans and ensure that their offerings are “affordable” by reference to Code Section 4980H and the corresponding safe harbors.  More information on affordability and ACA compliance can be found in our Employer Shared Responsibility Penalty Checklist for Employers, copies of which are available on request.