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The Affordable Care Act (ACA) requires applicable large employers (ALEs) to make an offer of group health coverage to at least 95% of its full-time (i.e., regularly working at least 30 hours per week) employees or pay a shared responsibility penalty assessed by the IRS if at least one employee gets a premium tax credit (PTC) for Marketplace coverage. The ACA also mandates that ALEs who offer group health coverage must make sure the coverage is affordable and provides minimum value or pay a separate shared responsibility penalty for any individual who receives a PTC for Marketplace coverage.
The ACA provides that if the lowest-cost single only coverage offered to an employee does not exceed a threshold percentage of his or her household income, the Internal Revenue Service (IRS) will deem the coverage affordable. The ACA originally set the affordability percentage at 9.5%, but the IRS adjusts the amount based on medical inflation annually. The IRS recently announced that the 2023 ACA affordability threshold will decrease to 9.12%.
Historically, the affordability threshold has risen more often than it has fallen. The significant drop in the threshold for 2022 means employers must cautiously set the cost for 2023 coverage at a low enough level to avoid more employees triggering a potential shared responsibility penalty. The new threshold applies for plan years (including non-calendar year plans) that start on or after January 1, 2023.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.