ACA Affordability Percentage Sees Increase in 2025

The IRS issued Rev. Proc. 2024-35 which contains the 2025 contribution percentage for purposes of determining whether an employer-sponsored group health plan is considered affordable to an employee under the Affordable Care Act (ACA). This determination has two implications:

• Employees who have access to affordable health coverage generally are not eligible for a premium tax credit through ACA’s public marketplace exchange.
• Large employers who are subject to the employer shared responsibility rule (aka the employer mandate or the “pay or play” mandate) must offer affordable coverage to their full-time employees or may be subject to a penalty.

For plan years beginning in 2025, a group health plan will be considered affordable if the employee’s contribution for self-only coverage does not exceed 9.02% of the employee’s household income. This represents an increase from 8.39% in 2024, reversing a two-year trend of declining affordability thresholds.

Because employers do not generally have access to an employee’s household income, the IRS developed three safe harbors employers can use to measure the affordability of their coverage. The three safe harbors an employer can use are: Form W-2 wages, the federal poverty level for a single individual, or the employee’s rate of pay.

The employer affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Employers should take this affordability threshold into consideration as they develop their 2025 contribution strategies.

Reach out to your Hylant representative for further information. Don’t have one? Contact us here.

The above information does not constitute advice. Always contact your employee benefits broker or trusted adviser for insurance-related questions.