2024 ACA Affordability Updates: Compliance and Strategy Insights

Oct 10, 2023

 

In anticipation of the 2024 open enrollment, employers should take note of a substantial modification pertaining to the Affordable Care Act (ACA) affordability safe harbors. The IRS has issued Revenue Procedure 2023-29, indicating a reduction in the ACA affordability threshold for 2024 to 8.39 percent, down from the 9.12 percent observed in 2023. This adjustment is anticipated to lower the maximum premium amount that employees might be obligated to contribute, consequently assisting employers in avoiding potential penalties.

It's important to underscore that the ACA affordability ratio is primarily subject to Applicable Large Employers (ALEs) under the ACA's employer mandate. ALEs rely on this ratio to assess the affordability of health plans offered to eligible full-time employees in strict adherence to ACA guidelines. Notably, ACA affordability criteria and most mandates do not extend to non-ALE businesses.

Preparing for 2024: ACA Affordability Updates and Their Significance

Under the ACA, employees are typically ineligible for a premium tax credit to purchase a qualified health plan through a marketplace Exchange if their employer-sponsored health coverage is affordable and provides minimum value.

Minimum value coverage is determined by ensuring that the plan covers at least 60% of the total allowed benefits costs and offers substantial coverage for inpatient hospital and physician services.

To be considered affordable, an employee's contribution for self-only coverage under the lowest-cost plan available can be at most 8.39% of their household income for the 2024 tax year. Employers have a significant role in determining employee contribution rates and must adhere to ACA affordability regulations to avoid penalties. Consequently, if a full-time employee of an Applicable Large Employer (ALE) receives a premium tax credit to obtain health coverage through an Exchange due to an unaffordable employer offer, the employer will generally incur specific ACA employer shared responsibility penalties.

 

Navigating ACA Subsidies: How Premium Tax Credits Benefit Eligible Applicants

Navigating the convoluted terrain of healthcare and comprehending the Affordable Care Act (ACA) and its provisions can be a formidable endeavor. However, within this complex landscape, there shines a beacon of financial relief for those who qualify: Premium Tax Credits. These credits, meticulously crafted to enhance the affordability of healthcare coverage, wield the power to substantially alleviate the financial strain posed by insurance premiums for eligible individuals and families. In this exploration of ACA subsidies, we will unravel the mechanics of Premium Tax Credits and clarify how they can bring discernible benefits to those meeting the eligibility criteria.

ACA Premium Tax Credits for Individuals and Families

The Affordable Care Act (ACA) provides Premium Tax Credits (PTCs) to reduce health insurance premiums for eligible individuals and families who use state Exchanges/Marketplaces. PTCs are calculated based on the second-lowest-cost IFP Silver Plan cost and the applicant's household income. It's important to note that subsidies and PTCs are not accessible if an employer, regardless of size, offers job-based coverage that meets the "affordable" criteria set by the ACA. However, if the premium for the second-lowest-cost Silver Plan exceeds 8.39% of household income in 2024 and affordable employer coverage is unavailable, federal premium assistance in the form of PTCs may be an option. For detailed and comprehensive information, individuals are encouraged to consult their respective state Marketplace/Exchange websites, where the administration of Premium Tax Credits (PTCs) is centralized.

Affordability Strategies for Applicable Large Employers

Within the ACA framework, employers have three safe harbors to assess employee plans' affordability: evaluating affordability based on the employee's Rate of Pay, W-2 Box-1 income, or the Federal Poverty Level (FPL). The chosen safe harbor must be consistent for all similar employee groups.

The ACA affordability assessment for the employer mandate centers on the employee's contribution to the lowest-cost ACA-compliant plan, excluding expenses for spouses and dependents. Nonetheless, Applicable Large Employers (ALEs) are obligated to provide coverage for dependents. It's worth noting that the employee's choice of plan does not impact affordability calculations; it consistently relies on the lowest-cost ACA-compliant plan available. While the ACA percentage is employed annually for Individual Market (IFP) subsidies, it aligns with the plan year for ALEs. For instance, a group commencing coverage on December 1, 2023, would utilize the 9.12% affordability threshold until November 30, 2024, before transitioning to the 2024 percentage on December 1, 2024.

Compliance Challenges: Minimum Wage and ACA Affordability Evaluation

Minimum wage adjustments are forthcoming in 2024 for both California and Nevada. California will see an increase to $16 per hour, effective January 1, 2024, while Nevada's minimum wage will rise to $12 per hour, starting July 1, 2024. As a result, employers will need to carefully assess the wages of their lowest-earning workers and align them with ACA affordability standards to ensure compliance. Additionally, it's important to note that several municipalities have minimum wage regulations that surpass these state-level requirements.

 

What Employers Need to Know About ACA Affordability Rates for 2024

When contemplating the ACA affordability rates 2024, employers must grasp the calculation process when offering multiple health plan choices. In these scenarios, affordability pivots on the most economical plan option accessible for individual coverage. Even if employees select more expensive plans, as long as the least costly self-only coverage aligns with ACA affordability criteria, the coverage offering remains compliant. Moreover, for employers extending regional plans across diverse states, affordability is ascertained by considering the most budget-friendly option within the particular states or regions served.

• IRS Corrects 'Family Glitch' with Premium Tax Credit Eligibility

  Following the IRS's October 2023 final rule addressing the ACA "family glitch," family members of employees without access to affordable, minimum-value employer-sponsored family coverage can now qualify for premium tax credits to obtain coverage through the marketplace Exchange. It's crucial to emphasize that this rule revision related to the "family glitch" does not affect ACA employer mandate rules, reporting obligations, or affordability calculations for employees under the ACA.

• Understanding ACA Affordability Safe Harbors for Employers

  The ACA affordability requirement swivels by comparing an employee's contribution for self-only coverage and the stipulated contribution percentage of the employee's household income. Acknowledging that employers typically lack knowledge of an employee's household income, the IRS permits employers to evaluate affordability using three designated ACA safe harbor methods. Adherence to these safe harbors serves as a safeguard for ACA employer shared responsibility, averting potential penalties.

  Employers have the flexibility to apply different ACA safe harbors to various employee categories, ensuring consistency and uniformity. These categories encompass aspects such as job classification, full-time vs. part-time status, salaried vs. hourly positions, geographic location, and employees with or without collective bargaining agreements.

• Impact of Non-calendar Year Plans on ACA Affordability Calculations

  The ACA's adjusted affordability percentage is implemented on a plan-year basis. Therefore, for non-calendar year plans with plan years occurring before January 1, 2024, the affordability assessments for employee contributions will continue to be based on the 2023 standard of 9.12% until the inception of their new plan year.

 

ACA Compliance Essentials: Minimum Value and Affordability Standards

 

• W-2 Safe Harbor:Affordability meets the criteria when the employee's premium share does not exceed the IRS-specified annual percentage of their Form W-2 wages for the calendar year.

• Rate of Pay Safe Harbor: Coverage qualifies as affordable when the employee's premium share aligns with the IRS-specified percentage of their monthly wages. This calculation involves multiplying their hourly rate by 130, while salaried employees' affordability calculation relies on their monthly salary.

• Federal Poverty Line Safe Harbor: Affordability is confirmed if the employee's share does not surpass the IRS-specified Federal Poverty Line (FPL) percentage for a single individual in their area. In 2024, this percentage is 8.39%, equivalent to $101.94 per month, lower than the 2023 rate of $103.28.

 

Evaluating Affordability: Which Employers Fall Under ACA Rules?

The rules governing the employer mandate under the Affordable Care Act (ACA) apply to entities classified as "Applicable Large Employers" (ALEs). An employer meets the criteria for ALE status if, when considering any affiliated entities within its controlled group, it employed an average of 50 full-time employees, including equivalent employees, on business days throughout the preceding calendar year.

The ACA and Your Business: Why Consult with Tax and Payroll Experts

Navigating the complexities of the ACA law and ACA IRS reporting is inherently tied to IRS regulations, making it essential for employers to engage with tax professionals. This is crucial for ensuring compliance with ACA laws and IRS mandates, all while tailoring these efforts to the unique circumstances of each employer.

In addition to tax professionals, employers of all sizes should seek counsel from payroll and employment law experts. Such consultations are pivotal in guaranteeing full compliance with all pertinent laws, including those governing minimum wage and ACA premium affordability for Applicable Large Employers (ALEs). This approach enables businesses to effectively fulfill their legal obligations while efficiently managing their responsibilities related to the ACA.

Compliance Challenges in 2024: How CBC Can Help with ACA Affordability

Custom Benefit Consultants, Inc. (CBC)stands at the forefront of addressing the evolving landscape of compliance challenges in 2024, particularly in the Affordable Care Act (ACA) affordability domain. Our relentless commitment to excellence and in-depth understanding of ACA regulations positions us as a trusted partner for organizations seeking tailored solutions.

At CBC, we recognize the complex nature of compliance requirements and offer a suite of services designed to meet and exceed your expectations. From comprehensive assessments to strategic guidance, our team ensures that your organization navigates these challenges effectively and thrives in the ever-changing regulatory environment.

As we move forward, we invite you to explore the full range of CBC services to elevate your compliance strategies. Contact us today to discuss how our expertise can be a transformative force for your organization. Let CBC be your strategic ally in achieving compliance excellence and unlocking new possibilities for success.