The IRS recently announced the Affordable Care Act’s (ACA) affordability percentages for 2023 (Revenue Procedure 2022-34, click here). These percentages, originally 9.5% and 8.0% in 2014 when the law became effective, in 2023 are as follows:
- Employer Shared Responsibility – 9.12% (down from 9.61% in 2022)
- Individual Mandate Exemption – 8.17% (up from 8.09% in 2022)
- Premium Tax Credit Eligibility – 9.12% (down from 9.61% in 2022)
These new percentages become effective for plan years beginning January 1, 2023.
For a summary of these three different affordability tests, click here for the prior Leavitt Group article.
Of interest to employers, is the first affordability percentage listed above because Applicable Large Employers (ALE) must offer affordable minimum essential coverage to qualified full-time employees. [An employer would be an ALE if employing 50 or more full-time and Full Time Equivalent (FTE) employees.] Under the ACA Employer Shared Responsibility (ESR) provisions, ALEs who do not offer affordable, minimum value coverage face potential penalties if full-time employees qualify for subsidies to buy health insurance in the Exchange Marketplace. Employer-sponsored coverage is considered “affordable” if the portion that the employee is required to pay for the lowest cost, self-only coverage does not exceed a certain percentage (in 2023 that is 9.12%) of the employee’s household income (or, as it is done by most, a percentage of one of the three safe-harbors: W-2, rate of pay, or Federal Poverty Line for a single individual). For more details, see the prior Leavitt Group article.
|Employer Shared Responsibility Rules||9.56||9.86||9.78||9.83||9.61||9.12|
|Individual Mandate Exemption||8.05||8.3||8.24||8.27||8.09||8.17|
|Premium Tax Credit Availability||9.56||9.86||9.78||9.83||9.61||9.12|
Implications for Large Employers
The 2023 decrease in the affordability percentage for ESR purposes means that employers may need to reduce employee contributions so that the employee is charged less for their health benefits in order to meet the “affordability” test.
FPL: Employers who use the Federal Poverty Line (FPL) safe harbor should decrease the affordable amount from $108.83 to $103.28.
Rate of Pay: Employer who use the rate-of-pay safe harbor should decrease the affordable amount from $124.28 to $128.18 for an employee earning $10 per hour. See table below.
The following matrix shows how the affordability percentage change from 2022 to 2023 effects a large employer’s maximum affordable amount under the three different safe harbors:
|Rate of Pay2||$90.57||$85.96||$124.93||$118.56||$187.40||$177.84|
|Federal Poverty Line 3|
FPL x 2022 Rate $13,590
*Use 2022 until 2023 rates are released
1W-2 income: This is based on the hourly rate x 40 hours/week x 52 weeks/year. For example, $7.25/hour 40 hours/week x 52 weeks/year is $15,080. $15,080 x 9.12% is $1,375.30. $1,375.30 divided by 12 months is $114.61. $114.61 is the most an employer may require a qualified full-time employee for their self-only ACA-compliant health plan.
2Rate of Pay: This is based on 130 hours x the three hourly rates noted.
3Federal Poverty Line (FPL): This is based on the 2022 FPL of $13,590 x 2023 affordability rate of 9.12%; it applies regardless of hourly rate.
Need More Help?
Leavitt Group is your Trusted Advisor for employee benefits compliance. Let us help! At Leavitt Group, our clients have access to tools that will calculate contributions in real time, allowing you to modify costs and adjust benefits to ensure compliance with the ACA affordability rules while keeping costs down. Contact your Leavitt Group representative.
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