Health Reform Bulletin 169 -Affordability Standards

2024 – AFFORDABILITY STANDARD

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 an employer-sponsored plan is deemed affordable to a particular employee if the employee’s required contribution to the plan does not exceed 8.39% (plan years beginning 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’s least expensive plan.

This is a significant reduction in the affordability calculation, an employer subject to employer shared responsibility will want to use extreme caution in determining whether its plans are affordable.

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

1. A Form W-2 determination in which the employer’s lowest cost self-only coverage providing minimum value does not exceed 8.39% (for 2024 plan year; 9.12% in 2023), of the employee’s Form W-2 wages (Box 1) for the calendar year.
2. A rate of pay method in which the minimum value cannot exceed 8.39% (for 2024plan year; 9.12% in 2023), of an amount 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 this method to hourly employees if they experience a reduction in pay during the year; 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 rate for the applicable calendar year, divided by twelve. While we do not know the FPL guidelines for 2024, we do know that a plan can use the poverty guideline in effect six months prior to plan’s effective date, hence for a 2024 calendar year 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 an individual 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 offer minimum essential coverage to its full-time employees or fails to offer adequate and affordable coverage may be subject to an excise tax, if at least one of its employees qualifies for premium assistance through a marketplace.

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’ excise tax pursuant to Code Section 4980H(b) is $4,460 annualized (or $371.67 per month).

Out-of-Pocket Cost Sharing Limits

The ACA imposes certain cost-sharing restrictions, such as out-of-pocket limits on health plans. These annual out of pocket limits apply to insured plans offered through the marketplace, and insured and self-funded plans 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 single limit ($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 HDHP cost 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-pocket limits apply to plan years beginning in 2024.

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

About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Kansas City office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.