Last year, the IRS announced a big change to the Patient Protection and Affordable Care Act (ACA) affordability percentage for 2024. This year’s percentage is 8.39%, a decrease from 9.12% for 2023. That’s the lowest percentage since 2015. Let’s take a deep dive into what that means for your business, and how an Individual Coverage Health Reimbursement Arrangement (ICHRA) can be the affordable healthcare solution to remain ACA compliant.
"Given the considerable inflationary pressures that are causing healthcare premiums to increase, I'm not surprised that the IRS has lowered the ACA affordability percentage for employers. This adjustment underscores the necessity for businesses to reevaluate their contribution strategy to ensure they're staying compliant and won't face penalties. If you're worried about increasing premiums, an ICHRA could be the cost-savings alternative you need,” says John Jenkins, Head of Compliance at SureCo.
What is the ACA Affordability Percentage?
Applicable large employers (ALEs) are required under the ACA Employer Mandate to offer affordable health coverage to full-time or full-time equivalent employees. The IRS sets a minimum baseline for coverage and affordability. But how is “minimum” coverage determined? According to the IRS, an employer-sponsored plan meets the mark if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
Coverage is considered affordable if an employee’s contribution for self-only (individual) coverage on the lowest cost plan available doesn’t exceed a certain percentage of their household income — otherwise known as the affordability percentage. This rate is adjusted annually for inflation. In 2023, an employee’s contribution for self-only coverage couldn't exceed 9.12% of their income; for plan years beginning January 1, 2024 or later, their contribution can't exceed 8.39% of their income.
How an Affordability Percentage Decrease Impacts Your Business
Unfortunately, this decrease goes hand in hand with the rise we're seeing in healthcare costs, on top of the 4.5% increase from 2022 to 2023. What it means for your business is that the employee is now expected to pay less for self-only coverage this year, while the employer will need to pay more of the cost of coverage to avoid an Employer Mandate penalty.
Depending on what industry your business is in, you could be at high risk for incurring ACA penalties (which were increased from 2022 to 2023). Particularly high-risk industries include:
- Leisure and Hospitality
- Home Healthcare
What makes them so risky compared to other industries? There are a few significant factors, such as a tendency to lack centralized HR teams, workforces of more hourly vs. salaried employees, high employee turnover, and not staying within the affordability percentage limits.
Staying ACA Compliant With an ICHRA
It might seem like things are only getting more difficult to manage for your team, but there is a light at the end of the tunnel. ICHRAs are a great alternative to traditional group plans to cut the rising costs of healthcare and remain ACA compliant.
In fact, ICHRAs are inherently ACA compliant — any plan offered through an ICHRA will meet the minimum essential coverage requirement. How? Because health coverage offered through an ICHRA must meet the same standards for affordability and coverage as plans available through the individual market. Even better: ICHRAs meet all ACA regulations regarding pre-existing conditions, annual and lifetime benefits, and essential health benefits.
SureCo’s Enrollment Platform makes it easy for your team to administer an ICHRA while staying ACA-compliant. Our team will do an affordability calculation during the onboarding process to make sure all individuals in your workforce meet the requirements for affordability. And because ICHRAs are driven by the individual market, rather than tied to claims, you’ll see significant savings on premiums compared to traditional group plans. And we do mean significant: SureCo clients saved an average of 22% on premiums by switching to an ICHRA. Don’t forget your ACA reporting: our platform simplifies that for you, reducing your team’s workload so you can focus on your other core responsibilities.
The shockingly high increases in healthcare costs and roadblocks making it difficult for your team to keep costs down can feel overwhelming. But by switching to an ICHRA, you can remain ACA compliant, majorly reduce costs, and offer quality plans that your employees and leadership will love, even in the face of the challenges on the horizon.