Steering though the continuously shifting landscape of healthcare regulation can be daunting, especially when it comes to the Affordable Care Act (ACA). With the ACA’s affordability threshold for employer-sponsored health plans shifting annually, staying compliant is more critical than ever for applicable large employers (ALEs).
In a recent Benefits Magazine article, Jack M. Towarnicky, ERISA Counsel and member at aequum LLC, breaks down the changes for 2024 and offers actionable strategies for plan sponsors. To learn more about how to ensure your health plan meets ACA affordability requirements for 2024, read Jack M. Towarnicky’s full article here.
Understanding ACA Affordability in 2024
The ACA requires the Internal Revenue Service (IRS) to annually determine the percentage of income that constitutes “affordable” health coverage for employees. For 2024, this affordability percentage has decreased from 9.12% to 8.39%. This means that the maximum employee contribution for single coverage cannot exceed 8.39% of their household income, a significant change from 2023. Failing to meet this standard can result in costly penalties for employers.
Towarnicky emphasizes that while this decrease may seem like a small adjustment, it has far-reaching implications for plan sponsors. Employers must now re-evaluate their health plans to ensure compliance and avoid financial penalties. The challenge lies in balancing cost management with providing affordable, compliant coverage to employees.
Safe Harbor Methods: Ensuring Affordability
To assist plan sponsors, the article highlights three safe harbor methods that simplify the process of determining whether a health plan is affordable under ACA guidelines:
- Form W-2 Method: This method evaluates affordability based on an employee’s W-2 wages, ensuring that the cost of single coverage doesn’t exceed 8.39% of the worker’s income.
- Rate of Pay Method: Employers can use this method to assess affordability by calculating employee contributions as a percentage of their monthly salary or hourly wages.
- Federal Poverty Level (FPL) Method: The simplest safe harbor option, this method compares employee contributions against the federal poverty level for the current year.
Towarnicky’s insights provide clarity on how plan sponsors can apply these methods and adjust contributions to meet the 2024 thresholds.
The Consequences of Non-Compliance
Failure to offer affordable coverage under the ACA can result in steep penalties for ALEs. The article outlines two primary penalties for non-compliance:
- The A Penalty: Applied if a plan fails to offer minimum essential coverage to at least 95% of full-time employees.
- The B Penalty: Imposed when a plan does not offer affordable or minimum-value coverage, and an employee receives subsidized coverage from a public exchange.
These penalties can add up quickly, making it crucial for employers to ensure their health plans are affordable.
Strategies for Plan Sponsors in 2024
Towarnicky’s article offers plan sponsors valuable strategies to manage their health plan costs while maintaining ACA compliance:
- Review Plan Design: Plan sponsors should annually assess whether their lowest-cost health plan options remain affordable under the ACA’s new thresholds. Adjustments in employee contributions or plan structure may be necessary to avoid penalties.
- Utilize Safe Harbor Methods: Employers can choose the safe harbor method that best suits their workforce demographics, ensuring that they remain compliant without overburdening employees with excessive healthcare costs.
- Monitor Premium Increases: Rising healthcare costs can impact affordability calculations. Plan sponsors must stay vigilant and adjust their plans accordingly to maintain compliance.
Partnering with aequum for Compliance
For plan sponsors facing the challenges of ACA compliance, aequum offers unparalleled expertise. With a deep understanding of healthcare regulations and the ACA’s evolving standards, aequum provides strategic guidance to help employers navigate these complexities. Towarnicky’s comprehensive analysis in Benefits Magazine is a testament to aequum’s commitment to empowering plan sponsors with the knowledge they need to stay compliant and manage costs effectively.
By staying informed and partnering with trusted advisors like aequum, plan sponsors can confidently manage healthcare compliance and avoid costly penalties.