ACA Requires Employers to Pay More in 2023

ACA Requires Employers to Pay More in 2023

Employers may have to increase the amount they contribute toward employee health premiums in 2023, as the newly announced Affordable Care Act (ACA) affordability percentage significantly decreases the employee contribution threshold. Companies need to pay close attention to these changes to avoid costly penalties. We’ve highlighted some of the changes that could impact your business.

According to Internal Revenue Service (IRS) Revenue Procedure 2022-34, the ACA affordability percentage for 2023 is set at 9.12%, marking the lowest rate since the inception of the ACA employer mandate. This latest affordability is marginally lower than 2022’s 9.61%, meaning that employees will be required to pay a smaller percentage toward their monthly medical premiums.

The employer shared responsibility provision came into play with the passage of the ACA, giving applicable large employers (ALEs) the option to offer affordable minimum essential coverage or potentially owe an employer shared responsibility payment to the Internal Revenue Service (IRS). ALEs wishing to avoid paying the penalty (pay or play) must ensure their coverage is in line with the ACA affordability percentage.

Measuring Affordability

Employers may use an affordability safe harbor to measure the affordability of their coverage. Determination can be made using Form W-2 wages, an employee’s pay rate, or the federal poverty line, instead of household income, to determine affordability. IRS Notice 2015-87 confirms that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages.

Remember that the affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that satisfies the minimum value requirement.

ACA Pay or Play Penalties

The ACA’s employer shared responsibility or pay or play rules require ALEs to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The affordability of health coverage is crucial in determining whether an ALE will be subject to a fine.

In recently updated frequently asked questions, the IRS updated penalty amounts that employers could incur. For calendar year 2023, the adjusted $2,000 penalty amount is $2,880 and the adjusted $3,000 penalty amount is $4,320.

Under the pay or play rules, an ALE is only liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees offered affordable minimum value coverage are generally not eligible for these Exchange subsidies. ALEs must remember that health coverage that was considered affordable before 2023 may not be considered affordable in 2023. Employers are encouraged to review their upcoming 2023 medical plans to ensure that premiums remain within the 2023 guidelines to avoid ESRP penalties from the IRS.


This information is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2022 CBIZ. All rights reserved.

ACA Requires Employers to Pay More in 2023 https://www.cbiz.com/Portals/0/Images/HCM_ACA_affordability_percentage-1.png?ver=GhBTCnFCoxIMxL36mM5W5A%3d%3dhttps://www.cbiz.com/Portals/0/CBIZ_HCM/enews_images/HCM_medical_insurance_e.pnghttps://www.cbiz.com/Portals/0/Images/HCM_medical_insurance_e.png?ver=hA8z8Rw1FZroy82T_HWM4Q%3d%3dThe IRS announced changes to the ACA affordability percentage. Companies need to pay close attention to these changes to avoid costly penalties.2022-08-30T16:00:00-05:00The IRS announced changes to the ACA affordability percentage. Companies need to pay close attention to these changes to avoid costly penalties.Employee ManagementPayroll ServicesYes