The IRS issued Rev. Proc. 2022-34 which contains the 2023 contribution percentage for purposes of determining whether an employer-sponsored group health plan is considered affordable to an employee under the Affordable Care Act (ACA). This determination has two implications:
- Employees who have access to affordable health coverage generally are not eligible for a premium tax credit through ACA’s public marketplace exchange.
- Large employers who are subject to the employer shared responsibility rule (aka the employer mandate or the “pay or play” mandate) must offer affordable coverage to their full-time employees or may be subject to a penalty.
For plan years beginning in 2023, a group health plan will be considered affordable if the employee’s contribution for self-only coverage does not exceed 9.12% of the employee’s household income. This is down from 9.61% of household income in 2022.
Because employers do not generally have access to an employee’s household income, the IRS developed three safe harbors employers can use to measure the affordability of their coverage. The three safe harbors an employer can use are: Form W-2 wages, the federal poverty level for a single individual, or the employee’s rate of pay.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.
Employers should take this affordability threshold into consideration as they develop their 2023 contribution strategies.
The above information does not constitute advice. Always contact your employee benefits broker or trusted adviser for insurance-related questions.
Holly leads Hylant’s ongoing efforts to provide our clients with compliance consulting services on new developments as well as ongoing requirements affecting health and welfare plans. She possesses a deep understanding of federal and state regulations pertaining to employee benefit plans, as well as extensive experience in group benefit plan operation.