2021 ACA Affordability Percentage

The Internal Revenue Service (IRS) recently issued Rev. Proc. 2020-36 which includes details on the minimum required contribution percentage in determining whether employer-sponsored health coverage is affordable. In 2021, employer-sponsored health coverage will be considered affordable if an employee has to pay no more than 9.83% (an increase of 0.05% from 2020) of their income for such coverage. The affordability percentage is important for multiple reasons, including:

1) Applicable large employers (ALEs) are subject to Employer Shared Responsibility provisions under the Affordable Care Act (ACA). This is more commonly referred to as the Employer Mandate. In order to reduce or eliminate the chance of penalties under the Employer Mandate, part of the requirements state that an affordable offer of coverage must be made. Employers determine if coverage is affordable based on the lowest-priced plan offered to the employee using the self-only premium rate. 

2) If an employee is offered an employer-sponsored health plan that has minimum value and is affordable, then the employee and their family members (i.e. spouse and dependent children) are ineligible for premium tax credits through the Health Insurance Marketplace. It should be noted that the way employers determine affordability of coverage in relation to the Employer Mandate is different than the way employees determine if they have affordable coverage for purposes of premium tax credits.

3) There is a scale that is used (and referenced in Rev. Proc. 2020-36) which aids in determining the amount of a premium tax credit on the Health Insurance Marketplace for those who are eligible for such subsidies. In 2021, the most that an individual or family will have to pay for the second lowest-priced Silver plan on the Health Insurance Marketplace is 9.83% of their modified adjusted gross income. The percentage is reduced for lower income households.

Employers, especially those subject to the Employer Mandate, should plan accordingly for their upcoming 2021 open enrollment periods. Employees and individuals should also be aware of this information to determine potential impact to premium tax credits.