The IRS released the ACA affordability percentage for 2023 in Revenue Procedure 2022-34. The affordability percentage is the lowest it has been since the inception of the ACA.
An Applicable Large Employer must offer its full-time employees minimum essential coverage that is affordable and provides minimum value. Health coverage is considered affordable if the employee’s contribution for the lowest-cost self-only coverage is 9.5% or less of the employee’s household income. The percentage is adjusted each year. For 2023, the amount an employee must contribute toward the cost of single-only coverage may not exceed 9.12% of household income. This is a decrease from the 9.61% affordability percentage in 2022. The change means employers may have to adjust the required employee premium contribution amount for the lowest-cost single-only coverage medical plan next year.
For historical reference, the affordability percentages have been as follows:
- 2015 Percentage: 9.56%
- 2016 Percentage: 9.66%
- 2017 Percentage: 9.69%
- 2018 Percentage: 9.56%
- 2019 Percentage: 9.86%
- 2020 Percentage: 9.78%
- 2021 Percentage: 9.83%
- 2022 Percentage: 9.61%
- 2023 Percentage: 9.12%
Recognizing that household income is difficult for an employee to determine, the IRS established three safe-harbors that employers may use to determine affordability. These safe harbors are
- W-2 income (the employee’s W-2 box-1 wages for the year);
- Rate of pay (the employee’s hourly rate multiplied by 130 hours per month);
- Federal poverty line (the annual federal poverty line for a single individual divided by 12).
The federal poverty line safe harbor is the easiest of the affordability safe harbors for an employer to calculate to ensure ACA compliance. In 2023, an employer will meet the ACA federal poverty line affordability safe harbor if their employees are required to pay no more than $103.28 per month for a single-only medical plan option.
To avoid potential ACA penalties, employers should pay attention to the new affordability percentage limit when setting contribution levels for open enrollment for the 2023 plan year and offer a medical plan option to full-time employees that costs the employee not more than $103.28 per month for single coverage.
