The Affordable Care Act (ACA) benchmark for determining the affordability of employer-sponsored health coverage will significantly decrease to 9.12% of an employee's household income for the 2023 plan year. This is a significant decrease from the 2022 level of 9.61%. This affordability percentage affects an individual’s eligibility for federally subsidized coverage from a marketplace exchange. It also can potentially affect the employer’s liability for shared-responsibility assessments.
Under the ACA, employer-sponsored minimum essential coverage (MEC) is affordable if an employee’s required contribution for the lowest-cost, self-only option with minimum value does not exceed an annually indexed percentage of the employee’s household income. Employees and their family members eligible for minimum-value employer-sponsored MEC that meets the affordability standard cannot receive premium tax credits or cost-sharing reductions for public exchange coverage.
To determine liability for play-or-pay assessments, there are three employer safe harbors that can replace household income in the affordability calculation. They are:
- Form W-2 wages
- Rate of pay
- Federal Poverty Level (FPL)
Employers should review the required employee contribution for 2023 coverage if they plan to meet the ACA’s affordability limit under the applicable safe harbor. If the employer plans to use the Federal Poverty Level (FPL) for the 2023 calendar-year plans, the required employee contribution cannot exceed 9.12% of the FPL for a particular area which is $13,590 for mainland U.S. or $103.28 per month.
Non-calendar year plans will continue to use 9.61% to determine affordability in 2023 until their new plan year starts. Non-calendar-year plans won't be able to calculate the FPL safe harbor contribution limit for plan years beginning after January 1, 2023, until the Department of Health and Human Services issues the 2023 FPL guidelines in January or February 2023.
A copy of the Revenue Procedure is available RP-2022-34 (irs.gov).
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