ACA Affordability Threshold Increases for 2027

The IRS has announced that the Affordable Care Act (ACA) affordability percentage will increase to 10.22% for the 2027 calendar year, up from 9.96% in 2026. For applicable large employers (ALEs), this annual adjustment is an important reminder to review employee health plan contributions before the start of the 2027 plan year.

Under the ACA employer mandate, ALEs generally must offer full-time employees health coverage that provides minimum value and is considered affordable or potentially face employer shared responsibility penalties. Because employers typically do not know an employee’s household income, the IRS permits employers to determine affordability using one of three affordability safe harbors.

The Three ACA Affordability Safe Harbors

Employers may use one of the following methods to determine whether their lowest-cost self-only medical plan is affordable:

• Form W-2 Safe Harbor: Employee contributions for the lowest-cost self-only plan cannot exceed 10.22% of the employee’s Box 1 Form W-2 wages for the year.
• Rate of Pay Safe Harbor: For hourly employees, affordability is determined by multiplying the employee’s hourly rate by 130 hours per month and ensuring the employee contribution does not exceed 10.22% of that amount. Salaried employees use their monthly salary.
• Federal Poverty Level (FPL) Safe Harbor: Affordability is measured using the federal poverty level published annually by the U.S. Department of Health and Human Services. This method is often the easiest to administer because it establishes a single maximum employee contribution that applies regardless of an employee’s actual wages and provides employers with predictable affordability calculations.

What Does the Increase Mean?

The higher affordability percentage allows employers using the ACA affordability safe harbors to require slightly higher employee contributions for self-only coverage while still satisfying the affordability requirements.

For employers using the Federal Poverty Level (FPL) safe harbor with calendar-year plans, the maximum monthly employee contribution for the lowest-cost self-only plan will increase from $129.90 in 2026 to $135.93 in 2027 for employees in the continental United States.

The monthly maximums are higher for employees working in Alaska and Hawaii because of the higher federal poverty levels applicable in those states:

• Continental United States: $135.93 per month
• Alaska: $169.91 per month
• Hawaii: $156.37 per month

Employers that use the FPL safe harbor should review their employee contribution amounts before the start of the 2027 plan year to ensure they continue to satisfy the ACA affordability requirements.

Planning for 2027

As employers prepare for open enrollment, consider the following:

• Review employee premium contributions to ensure they remain affordable under your selected safe harbor.
• Confirm that you are consistently applying the same affordability methodology to appropriate employee groups.
• If you sponsor a non-calendar-year health plan, continue using the 2026 affordability percentage until the beginning of your 2027 plan year.
• If you are considering changing employee contribution amounts effective January 1, 2027, remember that mid-plan-year contribution changes may require employee communications and could trigger cafeteria plan election change rules.

Employer Takeaway

The affordability percentage has now increased for the third consecutive year and reaches its highest level since the ACA employer mandate took effect. While the adjustment provides employers with slightly greater flexibility in setting employee contributions, it is still important to review affordability calculations annually and confirm that the selected safe harbor continues to align with your workforce, plan design, and ACA compliance strategy.