ACA 2024

Pay or Play Affordability Percentage Decreasing

Employers may need to raise their contribution towards employee health premiums due to the Affordable Care Act's (ACA) affordability percentage decrease, which lowers the employee contribution threshold.

Per a recent IRS announcement, the ACA affordability percentage for 2024 is 8.39%, the lowest rate since the start of the ACA employer mandate. This means that employees will be required to pay a smaller percentage towards their monthly medical premiums than the previous year's rate of 9.12%.

Measuring Coverage 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.

It's important to remember that the affordability test only applies to the annual cost of self-only coverage premiums and not any extra expenses for family coverage. Additionally, if an employer provides various health coverage choices, the affordability test applies to the least expensive option that meets the minimum value standard.

ACA Pay or Play Penalties

Under the ACA's shared responsibility rules, applicable large employer (ALEs) must provide affordable health coverage that meets minimum standards to their full-time employees and dependents. Failure to do so may result in penalties.  Penalty amounts that employers could incur are also increasing. For calendar year 2024, the adjusted $2,000 penalty amount is $2,970 (up from $2,880), and the adjusted $3,000 penalty amount is $4,460 (up from $4,320).

Penalties come into play if one full-time employee receives a subsidy for Exchange coverage, as employees provided with affordable minimum-value coverage are usually not eligible for these Exchange subsidies. To avoid any Employer Shared Responsibility Payment penalties from the IRS, employers should review their upcoming 2024 medical plans to ensure the premiums align with the 2024 guidelines. ALEs should keep in mind that health coverage deemed affordable before 2024 may not be considered affordable in the future.

Background of ACA Pay or Play

With the implementation of the ACA, the employer-shared responsibility provision was introduced. This provision offers ALEs the choice to provide affordable minimum essential coverage or face an employer-shared responsibility payment to the Internal Revenue Service (IRS). To avoid the penalty (pay or play), ALEs must ensure their coverage meets the ACA affordability percentage.

Employers must carefully consider the ACA's affordability percentage changes and the rising Pay or Play penalties. The updated rates require proactive steps to guarantee that employee health coverage remains affordable by 2024. Reviewing current medical plans, adjusting contributions, and regularly monitoring compliance with the ACA mandate is advisable. This will not only shield employers from significant penalties but also demonstrate their dedication to the well-being of their employees. Keep in mind that investing in your employee's healthcare today will result in a healthier workforce and increased productivity tomorrow.

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Pay or Play Affordability Percentage Decreasing how the Affordable Care Act's pay or play affordability percentage will decrease in 2024 and learn the criteria employers must use to determine coverage costs.2023-09-07T17:00:00-05:00Discover how the Affordable Care Act's pay or play affordability percentage will decrease in 2024 and learn the criteria employers must use to determine coverage costs.Employee ManagementEmployee BenefitsHRIS SolutionsPayroll ServicesYes