Breaking Down the Math: ACA Affordability for ICHRA

Team Orca
Sep 13, 2023

POV: You’re a broker or employer, and you want to know if your ICHRA contribution meets the Affordable Care Act (ACA) Affordability Thresholds.

TL;DR: an ICHRA Funding Strategy that covers 100% of a lowest-cost silver plan is almost always compliant. 

We often get requests for ACA Affordability analyses. Our team can usually look at an ICHRA funding strategy and know in seconds whether it is affordable.

Before we dive in, let’s set some context. 

What are the ICHRA ACA Affordability Thresholds? Why Does It Matter?

Applicable Large Employers (ALE) report each year to the IRS on whether they provide affordable health care coverage. If they don’t do this, they face fines.  

For 2024, the rule is that a lowest-cost silver plan cannot cost more than 8.39% of an individual’s annual income

How do I calculate ACA Affordability?

The formula is:

[Lowest Cost Silver Premium] - [Employer ICHRA Contribution] < (Employee’s Annual Income/12 Months) X .0839 

Let's do some math.

Example #1: Federal Poverty Line Safe Harbor 

I’m an employee living in Georgia, and I make $14,580 per year. That would put me right at the Federal Poverty Line (FPL) for a single individual. Note: An employee making minimum wage ($7.25/hour) working 40 hours a week will make $15,080 per year. In other words, very few full-time employees will make less than this amount.

($14,580/12) X .0839 = $101.94 per month

Remember this number. It represents IRS’s FPL Safe Harbor. It’s the easiest way to keep track of ACA Affordability because you don’t have to worry about changing incomes throughout the year. You just have to make sure that an employee’s share of a lowest-cost silver plan does not exceed $101.94. 

Example #2: What if I’m an employee earning $45,000 per year?

At this income level, the employee share of a lowest-cost silver plan cannot exceed $314.63 per month.

Here’s where it can get complicated. You have to offer all employees within the same “class” the same contribution strategy to meet ICHRA Non-Discrimination Requirements

Say you have a younger workforce and nearly everyone is in their twenties. You learn that the monthly cost of the lowest-cost silver plan for a 20-year-old living in Atlanta is $324.49. Legally, you only need to contribute about $10 via your ICHRA plan to meet ACA Affordability.

But perhaps you have a few employees in their 50s. That same plan will cost a 50-year-old $597.46, meaning your $10 ICHRA contribution (aside from being an extremely uncompetitive benefit offering) will meet ACA Affordability for your older workforce.  

In these scenarios, we recommend an Age-Based ICHRA Funding Strategy. To meet ACA Affordability Thresholds for your entire population, you need to offer about 55% of the cost the lowest-cost silver plan.  

Example #3: What if I need to meet ACA Affordability, but I don’t want to worry about income, location, or age?

Pro Tip: Offering 100% of the cost of a Lowest Cost Silver Plan for your employees will meet ACA Affordability Requirements 99.9% of the time. 

How does Venteur Make Sure Your ICHRA is ACA-compliant?

We conduct an ACA Affordability audit behind the scenes during your onboarding and annual renewal. Have a question about ACA Affordability? Get in touch with the Venteur team for a complimentary compliance review.

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