Earlier this year, the IRS released Revenue Procedure 2023-29, in which it announced an important indexing adjustment to the Affordable Care Act (ACA).

With year end here and a fresh 12 months of the calendar on the way, it’s an ideal time to determine whether your organization is (or will be) an applicable large employer (ALE) under the ACA. If it is, you need to know whether the health care coverage you plan to offer employees in 2024 will still be considered “affordable.”

The basic rules

For ACA purposes, an employer’s size is determined in any given year by its number of employees in the previous year. Generally, if your organization had 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is someone who provides, on average, at least 30 hours of service per week.

It’s critical to know what could happen if an ALE doesn’t offer minimum essential coverage that’s affordable and provides minimum value to its full-time employees and their dependents. In such a case, the employer may be subject to a penalty if at least one of its full-time employees receives a Premium Tax Credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).

Required contribution percentage

For plan years beginning in 2024, the required contribution percentage used to determine whether employer-sponsored health coverage is affordable for purposes of the ACA’s employer shared responsibility provision has been adjusted from the 9.5% baseline to 8.39% (down from 9.12% in 2023).

The Premium Tax credit has undergone some changes in recent years. The Inflation Reduction Act (IRA), signed into law in 2022, extended the favorable premium tax credit rules adopted under the American Rescue Plan Act (ARPA) through 2025.

The ACA limits the premium tax credit to taxpayers with household incomes between 100% and 400% of the federal poverty line who buy insurance through a Health Insurance Marketplace. However, the ARPA eliminated the upper income limit for eligibility. It also increased the amount of the premium tax credit by decreasing, across all income bands, the percentage of household income that eligible individuals must contribute toward the cost of coverage bought from a Health Insurance Marketplace. So, thanks to the IRA, they’ll remain at zero to 8.5% through 2025.

Informed and prepared

Although the ACA has been around for a while now, ALEs need to stay informed and be prepared to comply with health care insurance mandates and the latest requirements. Feel free to contact us with questions about your ACA obligations or about how to optimally manage the costs of the health benefits you offer employees.

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We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.

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