Good News! The ACA just reduced the employee insurance affordability threshold to 8.39%!

I've only written about the ACA's Affordability Threshold a few times before, usually regarding the so-called "Family Glitch." As explained by the always brilliant Louise Norris:

We still get calls on a regular basis from people who are shopping for individual insurance because adding dependents to their employer plan is prohibitively expensive. We estimate that roughly 20 percent of the people who contact us are in this situation.

Unfortunately, due to a “glitch” in the ACA, they are not eligible for premium subsidies in the exchange if the amount the employee has to pay for employee-only coverage on the group plan is deemed “affordable” – defined as less than 9.78 percent of household income in 2020.

It doesn’t matter how much the employee would have to pay to purchase family coverage. The family members are not eligible for exchange subsidies if the employee could get employer-sponsored coverage just for him or herself, for less than 9.78 percent of the household’s income in 2020. As long as the employee’s portion of the premium is affordable, the cost for the family could end up being 25 percent — or more — of their household income and they’d still have no access to premium subsidies. They can either pay full price in the individual market, or pay whatever the employer requires to cover the family on the employer’s plan, despite both options being financially unrealistic.

In this case, Norris is discussing the Affordability Threshold as it relates to whether or not households are eligible for ACA exchange subsidies. However, the other side of the Affordability Threshold coin is that employers are required to keep the affordability of their group coverage policies below a certain employee income threshold in order to avoid having to pay federal penalties.

The thing is, that Affordability Threshold percentage started at 9.5% when the ACA was signed into law, but varies from year to year based on a formula involving inflation & other factors. In 2019 it was 9.86% of household income, and as Norris notes, it was 9.78%.

For 2024, however, via JD Supra, it has dropped pretty substantially:

On August 23, 2023, the Internal Revenue Service issued Rev. Proc. 2023-29, announcing that the Affordable Care Act (ACA) affordability threshold will be 8.39% for plan years beginning in 2024, a substantial decrease from the 9.12% affordability threshold set for plan year 2023. This marks the largest change yet in the affordability thresholds year-over-year. The affordability threshold is used to determine whether employer-sponsored health coverage is affordable for purposes of the ACA’s employer-shared responsibility provisions.

Since 2014, the ACA regulations have provided that coverage is considered affordable if the employee premium for the lowest, self-only coverage option does not exceed a certain percentage of an employee’s household income. That threshold percentage has been adjusted each year since 2014 but has always remained above 9% until this latest announcement.

The decrease in the 2024 affordability threshold will likely force employers to reduce the cost of their lowest-cost, self-only coverage option in order to avoid potential ACA penalties.

Assuming an employee who earns 40 hours/week at $20/hour ($41,600/yr), the most the employer-sponsored coverage could cost the enrollee in premiums is $291/month this year vs. $316 last year. In other words, they're saving $25/month or $300/year in premiums.

Of course, this savings will vary widely depending on their salary and any income from other sources, and the threshold will change again next year (possibly increasing), but in the meantime, it's a nice bit of good news for employees everywhere (not so much for some of their employers, of course).