September 11, 2023

Employers who wish to avoid employer shared responsibility payments for 2024 generally have three safe harbor options for making an offer of coverage considered “affordable” under the ACA (summarized here in general terms):

• The W-2 Method: The employee’s contribution for the lowest cost self-only plan option that provides minimum value can be no more than 8.39% of Form W-2 wages; or
• The Rate of Pay Method: The employee’s monthly contribution for the lowest cost self-only plan option that provides minimum value can be no more than 8.39% of 130 hours multiplied by the employee’s hourly rate of pay (or lowest hourly rate of pay during the calendar month, if lower); or
• The Federal Poverty Line (FPL) Method: The employee’s monthly contribution for the lowest cost self-only plan option that provides minimum value can be no more than 8.39% of 1/12^th of the prior year’s applicable annual FPL, e.g., $14,580 annual for mainland US ($1,215 monthly X by 8.39% = $101.94/month).

The safe harbors have a number of other conditions and features for employers in order to apply them to their particular plans. And notably, non-calendar year plans have additional considerations under each safe harbor. In general, though, employers that make an offer of “affordable” coverage meeting one of these safe harbor standards to full-time employees will not be subject to ESRP penalties.

Next Steps

Compared to 2023, some employers may need to reduce the employee cost for the employee-only low-cost option in order for the 2024 offer to be considered “affordable”. Otherwise, the reduction in affordability percentage for 2024 could result in some health plans failing to meet an affordability safe harbor and therefore become exposed to employer shared responsibility penalties.

As employers are preparing for annual enrollment for 2024, they should review their safe harbor options in-light of this affordability percentage change with their consultants and legal counsel. In many cases, shifting safe harbors or assessing pricing changes also involves other human resources and payroll department partners than those that may be involved in other health benefit changes year-over-year.

Resources

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Policy & Advocacy Compliance Affordable Care Act (ACA)