2025 Healthcare Affordability Percentage Released: Applicable Large Employers Take Note
The Affordable Care Act set affordability limits on, among others, employer-sponsored group health plans. It also set significant penalties for failure to offer affordable plans, based on the cost of a silver-level plan for employee-only coverage (regardless of an employee’s election for dual or family coverage). That initial amount was that employee-only coverage could not exceed 9.5% of an employee’s household income (this percentage is indexed annually).
Background: Since employers couldn’t easily determine an employee’s household income, the IRS came up with three safe harbors for employers to use to determine whether coverage was affordable. Initially, the cost of that coverage could not exceed 9.5% of:
- The employee’s Box 1 of the W-2 form from the prior year;
- The employee’s rate of pay; or
- The Federal Poverty Level (FPL) for an individual.
Each year, the FPL is indexed to inflation, as is the 9.5% threshhold. For 2025, that percentage will increase from 2024’s 8.39% to 9.02%, as reported in our previous post.
For Applicable Large Employers (ALEs–those with 50+ full-time equivalents), this is a significant and favorable increase in the percentage threshhold. For 2025 using the FPL safe harbor, it translates to an employee’s monthly premium cost in a calendar year plan to not exceed $113.20 per month using the 2024 FPL, up from $101.94 per month for those using the 2023 FPL, for the employer’s lowest-cost plan meeting ACA’s Minimum Value (60%). For those with plan years beginning between February 1, 2025 and June 30, 2025, they may choose to use either the 2024 FPL value of $113.20 or the 2025 FPL value of $117.64. Obviously, most ALEs will utilize the 2025 FPL value. For plan years beginning July 1, 2025 through December 31, 2025, they must use the $117.64 per month FPL value.
Note: Those ALEs using either the Box 1 of the W-2 form or the employee’s rate of pay options are unaffected by the FPL increases.
Bottom Line: Employers should begin preparing now for determining its plan offerings and cost-sharing strategies for plans renewing in 2025.