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CMS Makes Large Cut to Affordability Level for Group Health Plans for 2024

For 2024, the IRS has significantly reduced the group plan affordability threshold — which is used to determine if an employer’s lowest-premium health plan meets the Affordable Care Act rules.

The threshold for next year has been set at 8.39% of an employee’s household income, down significantly from 9.12% this year. The lower threshold will likely require employers to reduce their employees’ premium cost-sharing level for their lowest-cost plans in 2024, to stay compliant with the ACA.

This is happening just as group health plan premiums are expected to climb at a much faster clip in 2024 than in the last three years.

Under the ACA, “applicable large employers” — that is, those with 50 or more full-time or full-time equivalent employees (FTEs) — are required to offer at least one health plan to their workers that is considered “affordable” based on a percentage of the lowest-paid employee’s household income.

The lowest level yet

The new level is the lowest affordability threshold since the ACA took effect, and almost one-and-half percentage points lower than the 9.89% threshold in 2021. The new threshold will apply to all health plans when they are introduced in 2024. For plans that incept after Jan. 1, the 2023 threshold will apply and change to the new rate when they renew later in the year.

Employers can rely on one or more safe harbors when determining if coverage is affordable:

  • The employee’s W-2 wages, as reported in Box 1 (at the start of 2022)
  • The employee’s rate of pay, which is the hourly wage rate multiplied by 130 hours per month (at the start of 2022)
  • The federal poverty level

Example 1: The lowest-paid worker at Company A earns $25,987 per year. To meet the 2024 affordability requirement, they would have to pay no more than $2,180 a year in premium (or $181 a month).

Example 2: Company B has a large low-wage workforce and may utilize the federal poverty level ($14,580 for 2024) safe harbor and offer at least one health plan option that costs FTEs no more than $101.94 per month.

If an employee’s coverage is not affordable under at least one of the safe harbors and at least one FTE receives a premium tax credit for coverage they purchase on an ACA exchange, the employer may have to pay a penalty, known as the “employer shared responsibility payment.”

The shared responsibility payment for 2024 will be $4,460 per employee who receives a premium subsidy on an exchange, up from $4,320 this year.

The takeaway

As 2024 nears, you should review your health plan costs and premium-sharing to ensure that your lowest-cost plan complies with the affordability requirement.

At VMA, we can help you assess affordability to ensure you don’t run afoul of the law. It will be particularly crucial in 2024, considering the significant drop in the threshold. Contact Shannon Wolford, Director of Sales and Member at shannon@visualmediaalliance.org to discuss your options.

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