Employer-Sponsored Health Insurance and the ACA Affordability Standards: What You Need to Know
As a W2 employee, you may have recently received notification that your employer is offering health insurance on a pre-tax basis. However, you’re concerned because the premiums seem high and you’re wondering if they meet the affordability standards set by the Affordable Care Act (ACA).
The ACA Affordability Standards
The ACA established affordability standards for employer-sponsored health insurance plans. These standards are based on a percentage of the employee’s annual salary. For 2023, the affordability threshold is 9.61%. This means that the employee’s share of the premium for the lowest-cost plan offered by the employer cannot exceed 9.61% of their annual salary.
Example:
If an employee earns $35 per hour and works 40 hours per week, their annual salary is $72,800. The affordability threshold for this employee is $7,005 ($72,800 x 0.0961). If the cheapest plan offered by the employer costs $775 per month, or $9,300 per year, then it does not meet the affordability standard.
Employer Exceptions
There are some exceptions to the ACA affordability standards. One exception is for employers with fewer than 50 full-time employees. These employers are not required to offer health insurance, and if they do, they are not subject to the affordability standards.
Another exception is for employees who are offered coverage through a government-sponsored program, such as Medicare or Medicaid. These employees are not eligible for the ACA affordability standards.
Your Options
If your employer’s health insurance plan does not meet the ACA affordability standards, you have a few options:
Enroll in your employer’s plan and pay the full premium. You may be able to deduct the premiums on your taxes.
Enroll in a plan through the Health Insurance Marketplace. You may be eligible for a premium tax credit to help you pay for coverage.
Go without health insurance. This is not recommended, as you may face a tax penalty.
If you’re not sure what to do, you can contact a licensed insurance agent for help. They can review your options and help you find a plan that meets your needs and budget.
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