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Understanding ACA Affordability for 2025

On September 9, 2024, the IRS released Rev. Proc. 2024-35, which set the ACA affordability percentage for plan years beginning on or after January 1, 2025 at 9.02% of household income. As illustrated in the chart below, this is an increase over the 2024 affordability percentage of 8.39%, but it is still a lower percentage than every affordability percentage prior to 2024.

Background

Under the ACA, applicable large employers (ALEs)—those with 50 or more full-time equivalent employees (FTEs)—are required to comply with the employer shared responsibility rules under §4980H (also known as the “employer mandate”). To avoid potential penalties, employers are required to offer coverage to full-time employees and their dependent children. In addition, the coverage offered to full-time employees must provide minimum value and be affordable.

Coverage is “affordable” if the required employee contribution does not exceed a set percentage of household income. That percentage is set annually by the IRS. For employees, coverage is affordable if the required employee contribution for the lowest cost minimum value plan for employee-only (single) coverage is affordable. For spouses and dependents, coverage is affordable if the required employee contribution for the lowest cost minimum value plan for family coverage is affordable.

Because employers may have no way of determining an employee’s total household income, coverage is considered “affordable” for purposes of satisfying ACA requirements so long as the required employee contribution satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2). To learn more about these safe harbors and affordability considerations, see our recent briefing.

For assistance in determining the affordability of your group health plan, please contact your Keenan employee benefits consultant.