Seyfarth Synopsis: The IRS has announced adjustments decreasing the affordability threshold for plan years beginning in 2023, which may cause employers to have to pay more for ACA compliant coverage in 2023.

The IRS recently released adjustments decreasing the affordability threshold for plan years beginning in 2023 in Revenue Procedure 2022-34.

Under the Affordable Care Act (ACA), applicable large employers (ALEs) that do not offer affordable minimum essential coverage to at least 95% of their full-time employees (and their dependents) under an eligible employer-sponsored health plan may be subject to an employer shared responsibility penalty. Generally speaking, coverage is affordable if the employee-required contribution for self-only coverage is no more than 9.5% (as adjusted each year) of the employee’s household income. The adjusted percentage for 2022 is 9.61%. For more information regarding the 2022 affordability threshold, see our prior Blog Post here.

Adjusted Percentage for 2023

Under Revenue Procedure 2022-34, the adjusted percentage for 2023 will be 9.12%. This is a decrease of 0.49% from the 2022 affordability threshold of 9.61%, and is the lowest affordability threshold to date by far.

Federal Poverty Line (FPL) Safe Harbor

Making calculations based on each employee’s household income would be administratively burdensome. Accordingly, there are three safe harbors for determining affordability based on a criterion other than an employee’s household income; namely an employee’s Form W-2 wages, an employee’s rate of pay, or the FPL. If one or more of the safe harbor methods can be satisfied, an offer of coverage is deemed affordable.

The FPL safe harbor is the easiest to apply, since an employer has to do just one calculation and can ignore employees’ actual wages, and is intended to provide employers with a predetermined maximum required employee contribution that will in all cases result in coverage being deemed affordable. Under the FPL safe harbor, employer-provided coverage offered to an employee is affordable if the employee’s monthly cost for self-only coverage does not exceed the adjusted percentage (9.12% for 2023) of the federal poverty line for a single individual, divided by 12. The federal poverty guidelines in effect 6 months before the beginning of the plan year may be used for an employer to establish contribution amounts before the plan’s open enrollment period.

For plan years beginning in 2023, a plan will meet the ACA affordability requirement under the FPL safe harbor if an employee’s required contribution for self-only coverage does not exceed $103.28 per month.

Given the large decrease in the adjusted percentage, employer-sponsored health coverage that was considered to be affordable prior to 2023 may no longer be considered affordable in 2023. Therefore, employers may have to pay more for ACA compliant employer-sponsored health coverage in 2023. If you have any concerns about the affordability of your health care coverage offerings, please reach out to one of our Employee Benefits attorneys directly.