The Affordable Care Act (ACA) continues to play a pivotal role in shaping how employers offer health insurance to their workforce. One of the critical components of the ACA is the affordability percentage, which determines the minimum requirements employers must meet to provide affordable coverage.
For 2025, this percentage has been adjusted, marking an end to a trend of declining affordability thresholds over the past few years.
Understanding these changes and their implications is essential for employers who want to avoid penalties, stay compliant, and ensure their employees have access to affordable health insurance.
In this article, we’ll explore what the ACA affordability percentage is, how it’s calculated, the new threshold for 2025, and practical strategies for employers to navigate these changes.
Read also: What is the Affordable Care Act (ACA) and How to Get ACA Health Insurance?
What is ACA Affordability?
The ACA affordability percentage sets a limit on how much an employee can be required to pay for employer-sponsored health insurance. This percentage ensures that health plans remain within reach of employees, preventing situations where workers are burdened with excessively high premiums.
Under the ACA’s Employer Shared Responsibility provisions (also known as the employer mandate), employers with 50 or more full-time employees must offer health coverage that meets minimum essential coverage (MEC) standards. Additionally, this coverage must be affordable based on the defined percentage of the employee’s household income.
If employers fail to provide affordable coverage, they could face substantial penalties. This makes it crucial for businesses to understand the annual changes in the affordability percentage and adapt their health plans accordingly.
ACA Affordability Percentage for 2024 and 2025: A Comparison
Here is a brief comparison between ACA affordability percentages in 2024 and 2025:
- 2024 Affordability Percentage: For the year 2024, the ACA affordability threshold was set at 9.12% of an employee’s household income. This figure represented a continuation of the previous trend where the percentage had been gradually declining. Lower affordability percentages typically mean that employers need to contribute more toward their employees’ health premiums to keep the plans affordable.
- 2025 Affordability Percentage: In 2025, the ACA affordability percentage has been increased to 9.02%. While this may seem like a minor change, it is significant for businesses. This increase marks the end of three consecutive years of decreases, reflecting economic adjustments and rising healthcare costs. Employers need to pay close attention to this change because it directly impacts how they design and price their health plans. With a higher threshold, there’s a slightly broader allowance for how much employees can contribute to their health coverage without breaching the affordability criteria.
Why Did the ACA Affordability Percentage Increase for 2025?
The adjustment in the ACA affordability percentage is primarily influenced by various economic factors, including inflation and rising healthcare expenses.
Over the past few years, healthcare costs have seen a steady increase, driven by several factors like new medical technologies, higher demand for services, and the rising cost of prescription drugs. In response to these shifts, the affordability percentage was recalibrated to allow employers a bit more flexibility.
This increase aims to strike a balance between ensuring employees have access to affordable coverage and acknowledging the economic realities businesses face, especially small to medium-sized enterprises that may struggle with the high costs of providing health insurance.
How ACA Affordability is Calculated?
The affordability of a health plan under the ACA is determined by whether the employee’s share of the premium for the lowest-cost, self-only plan does not exceed a specific percentage of their household income.
For 2025, that percentage is 9.02%. The calculation considers different safe harbor methods, which employers can use to determine compliance without knowing each employee’s exact household income. Here are the three main safe harbor methods:
- Federal Poverty Line (FPL) Safe Harbor: This method uses the federal poverty line to calculate affordability. For 2025, if the cost of self-only coverage does not exceed 9.02% of the FPL, the plan is considered affordable. This method is straightforward and provides a consistent benchmark that applies to all employees.
- Rate of Pay Safe Harbor: Under this method, employers calculate affordability based on an employee’s hourly rate or monthly salary. If the monthly contribution for self-only coverage does not exceed 9.02% of the employee’s monthly earnings (based on 130 hours per month for hourly workers), the plan is deemed affordable. This method is useful for businesses with variable workforce hours.
- W-2 Safe Harbor: This safe harbor uses the wages reported on the employee’s W-2 form to assess affordability. The calculation is based on 9.02% of the employee’s annual income, allowing employers to determine affordability based on actual wages earned throughout the year.
Impact of the 2025 ACA Affordability Percentage on Employers
The increase to 9.02% may seem modest, but it carries significant implications for employers. For businesses, particularly those with a large workforce or companies that operate on tighter margins, even a small change in the affordability percentage can affect overall healthcare costs.
Employers need to understand that failure to comply with the ACA’s affordability requirement could lead to penalties. If an employer offers a plan that is not considered affordable, and at least one employee receives a subsidy through the health insurance marketplace, the employer may be subject to a fine.
These fines can be substantial, making it essential for businesses to reassess their health insurance strategies to avoid any financial repercussions.
Strategies for Employers to Manage ACA Compliance in 2025
Given the new ACA affordability percentage for 2025, employers should take proactive measures to ensure they remain compliant while managing costs effectively. Here are a few strategies that can help:
- Review and Adjust Plan Contributions: Employers should conduct a thorough review of their existing health plans to determine if they still meet the affordability criteria for 2025. If necessary, adjust the contribution levels to ensure compliance. This might mean increasing the employer’s share of the premiums, which could raise costs but will ultimately prevent penalties.
- Consider Offering Multiple Plan Options: One effective way to address affordability is by offering a range of health plans that cater to different needs and budgets. Providing a variety of plan options allows employees to select the coverage that best suits their situation, reducing the likelihood that the chosen plan will be deemed unaffordable.
- Use ACA Safe Harbor Methods: Employers can use the safe harbor methods to simplify the process of determining whether their plans are affordable. Each method has its advantages, and selecting the most suitable one can make compliance easier. For example, the FPL safe harbor offers a fixed benchmark that can be easier to manage, especially for employers with part-time or hourly workers.
- Leverage Benefits Technology Platforms: Modern benefits technology platforms can assist employers in monitoring employee contributions, managing health plans, and ensuring compliance with ACA regulations. These platforms can automatically track affordability levels and alert employers to any potential issues before they lead to penalties.
Conclusion
The change in the ACA affordability percentage for 2025 represents a shift that employers must pay attention to. While the increase to 9.02% provides slightly more leeway, it still requires careful planning to ensure compliance. By understanding how the affordability threshold is calculated, using safe harbor methods, and leveraging modern benefits technology, employers can navigate these changes effectively.
Staying ahead of ACA compliance not only helps businesses avoid costly penalties but also ensures that employees have access to affordable, reliable health coverage. As healthcare regulations evolve, maintaining compliance will remain a priority for employers looking to provide value to their workforce and protect their bottom line.
If you’re an employer navigating the complexities of ACA compliance, consider consulting with a benefits expert to make sure your healthcare offerings meet the 2025 requirements. A little proactive planning now can save significant costs and headaches down the road.
FAQs: ACA Affordability Percentage for 2025
Some related FAQs:
What is the ACA affordability percentage for 2025?
The ACA affordability percentage for 2025 has been set at 9.02% of an employee’s household income, marking an increase from the 2024 percentage of 9.12%.
How does the ACA affordability increase affect employees?
A higher affordability percentage means employees may have to pay a slightly higher portion of their premiums. However, employers still need to ensure their plans remain affordable under this threshold.
What penalties do employers face for not complying with the ACA affordability rule?
Employers who fail to offer affordable coverage that meets the minimum essential coverage standards could face penalties if their employees receive subsidized coverage through the ACA marketplace.
How can employers ensure they remain compliant with the 2025 ACA affordability threshold?
Employers can use safe harbor methods, review their plan contributions, and leverage benefits management technology to ensure compliance.
Are there any exemptions to the ACA affordability rule?
Certain employers, such as those with fewer than 50 full-time employees, may be exempt from the employer mandate. However, it’s essential to understand the specifics of the ACA regulations to determine if any exemptions apply.
