Demystifying the Affordable Care Act: Determining the True Cost of Your Health Insurance

The Affordable Care Act (ACA) has been a game-changer in the healthcare landscape, providing millions of Americans with access to affordable health insurance. However, understanding the intricacies of the ACA can be a daunting task. In particular, the concept of “affordable” coverage can be confusing.

This blog aims to break down the basics of ACA insurance and help you determine if your employer’s health insurance plan meets the affordability threshold.

What is the ACA Affordability Threshold?

According to the ACA, employers with 50 or more full-time employees must offer affordable and comprehensive health insurance coverage to their employees. “Affordable” coverage means that the employee’s contribution towards the health insurance premium cannot exceed 8.39% of their annual household income. This threshold is set by the Internal Revenue Service (IRS) and is adjusted annually. For 2024, the affordability percentage remains unchanged at 8.39%.

Determining the Affordability of Your Employer’s Health Insurance

To determine if your employer’s health insurance plan meets the affordability threshold, you need to calculate the percentage of your annual income that you would be contributing towards the premium.

Step 1: Calculate Your Annual Household Income

Your annual household income includes all sources of income, such as wages, salaries, bonuses, self-employment income, and investment income.

Step 2: Calculate Your Annual Employer-Sponsored Health Insurance Premium

This is the amount you would pay for the most basic health insurance plan offered by your employer. It includes both your share of the premium and any contributions made by your employer.

Step 3: Calculate the Percentage of Income Contributed

Divide the annual employer-sponsored health insurance premium by your annual household income. Multiply the result by 100 to get the percentage.

Step 4: Compare to the Affordability Threshold

If the percentage calculated in Step 3 is less than or equal to 8.39%, then your employer’s health insurance plan meets the affordability threshold. Otherwise, it does not.

What if My Employer’s Health Insurance is Not Affordable?

If your employer’s health insurance plan does not meet the affordability threshold, you may be eligible for premium tax credits through the Health Insurance Marketplace. These tax credits can help lower the cost of your health insurance premiums, making it more affordable.

Safe Harbors: What Employers Need to Know

Employers have three safe harbor options to demonstrate that they are offering affordable coverage to their employees:

Rate of Pay Safe Harbor: This safe harbor allows employers to use an employee’s hourly wage to calculate the affordability of coverage.
Uniform Percentage Safe Harbor: Employers can offer a uniform percentage of the premium for all employees, regardless of income.
Contribution Safe Harbor: Employers can contribute a fixed dollar amount towards the premium for all employees.


Understanding the affordability of your employer’s health insurance plan is crucial for making informed decisions about your healthcare coverage. By following the steps outlined in this blog, you can determine if your employer’s plan meets the ACA threshold. If not, you may be eligible for premium tax credits that can help lower the cost of your health insurance.

If you have any questions or need assistance, seeking the help of a licensed insurance agent who specializes in ACA coverage is highly recommended.

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