2024 – AFFORDABILITY STANDARDS

In Revenue Procedure 2023-29,the Internal Revenue Service released certain affordability standards for 2024 as they apply to the Affordable Care Act (ACA), as follows:

Affordability Standard – Employer Shared Responsibility Mandate

Coverage under anemployer-sponsored plan is deemed affordable to a particular employee if theemployee's required contribution to the plan does not exceed 8.39% (plan yearsbeginning in 2024, down from 9.12% for 2023) of the employee's household income for the taxable year, based on the cost of single coverage in the employer’sleast expensive plan.

This is a significant reduction inthe affordability calculation, an employer subject to employer sharedresponsibility will want to use extreme caution in determining whether itsplans are affordable.  

As background, an employer subject to the ACA’s employer shared responsibility mandate who failsto offer minimum essential coverage to its full-time employees or fails tooffer adequate and affordable coveragemay be subject to an excise tax if at least one of its employeesqualifies for premium assistancethrough a marketplace. If an employerdoes not know an individual’s household earnings, it can use one of three safeharbors for purposes  of determining affordability; they are:

1. A Form W-2 determination in which the employer’s lowest costself-only coverage providing minimum value does not exceed 8.39% (for 2024 planyear; 9.12% in 2023), of the employee’s Form W-2 wages (Box 1) for the calendaryear.
2. A rate of pay method in which the minimum value cannot exceed 8.39% (for 2024plan year; 9.12% in 2023), of anamount equal to 130 hours, multiplied by the employee’s hourly rate of pay as of the first day of the coverage period. For salaried employees, the monthly salary is used instead of the 130-hourstandard. An employer can apply thismethod to hourly employees if they experience a reduction in pay during theyear; however, this methodology cannot be used for commissioned salespeople.
3. A Federal poverty line (FPL) standard in which cost of single coverage does not exceed 8.39%(for 2024 plan year; 9.12% in 2023) of the individual federal poverty line ratefor the applicable calendar year, divided by twelve. While we do not know the FPLguidelines for 2024, we do know that a plan can use the poverty guideline ineffect six months prior to plan’s effective date, hence for a 2024 calendaryear plan the affordability limit is $101.94.

• See federal poverty level (FPL)guidelines for 2023.

Premium Tax Credit

The following contribution percentages are used to determine whether anindividual is eligible for a premium tax credit for health coverage purchased through the marketplace for the 2024 tax year:

2024 - 4980H Penalties

An employer subject to the ACA’s employer shared responsibility mandate (employing50 or more full- time and full-time equivalent employees) who fails to offerminimum essential coverage to its full-time employees or fails to offeradequate and affordable coverage may be subject to an excise tax, if at leastone of its employees qualifies for premium assistance through amarketplace. 

For 2024, the ‘no coverage’ excise tax pursuant to Code Section 4980H(a) is $2,970 annualized (or $247.50 per month) and the ‘inadequate or unaffordable’ excisetax pursuant to Code Section 4980H(b) is $4,460 annualized (or $371.67 permonth).

Out-of-Pocket Cost Sharing Limits

The ACA imposes certain cost-sharing restrictions, such asout-of-pocket limits on health plans. These annual out of pocket limits applyto insured plans offered through the marketplace, and insured and self-fundedplans offered outside marketplace, excluding grandfathered plans. Below are cost sharing limitations for 2023 and 2024:

Note: no individual can be subject to an out-of-pocket limit greater than the singlelimit ($9,450) for 2024.

As a reminder, the out-of-pocket limits applicable to high deductible health plans(HDHP) used in conjunction with health savings accounts (HSA) differ from these ACA-imposed cost sharing limits. Following are the 2023 and 2024 HSA and HDHPcost of living adjustments:

• Catch-up contributions for people over 55remain unchanged at $1,000.
• The contribution limit applies to the 2024 calendar year.
• The HDHP deductible and out-of-pocketlimits apply to plan years beginning in 2024.

 If a family plan includes an individual embedded deductible, keep in mind that theindividual embedded deductible can be no lower than the minimum family statutorydeductible which is $3,200.