Under the Affordable Care Act (ACA), applicable large employers (ALEs) — i.e., those with, on average, fifty (50) or more full-time or full-time-equivalent employees in the preceding year — must offer in the following year affordable, minimum value group health plan coverage to their full-time employees and those employees’ dependents or risk imposition of ACA penalties. Affordability is determined by using the employee’s premium for the lowest-cost employee-only coverage under the employer’s plan. The coverage is affordable if the employee premium for this coverage is 9.5% (as adjusted) or less of the employee’s household income.

Recognizing that employers might have a very difficult — if not impossible — time determining full-time employee household income, the ACA employer mandate final regulations set forth three (3) safe harbor proxies for employee household income that employers can select from to make affordability determinations:  the federal poverty line, W-2 wages, or rate of pay.

In the recently issued Rev. Proc. 2023-29, the Internal Revenue Service announced the affordability percentage that will apply for plan years beginning in 2024:  8.39%. This percentage is a notable reduction from the previously applicable 9.12% for 2023 and is the lowest applicable percentage since the employer mandate’s inception.

With open enrollment for calendar year plans just around the corner, ALEs should take immediate steps to make sure their offers of coverage for 2024 will satisfy the new affordability percentage.