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Determining ICHRA affordability in 2024

Applicable Large Employers • December 11, 2023 at 1:56 PM • Written by: Chase Charaba

If you're an applicable large employer (ALE) with more than 50 full-time equivalent employees (FTEs), that means your organization is subject to more regulations than smaller businesses, especially when it comes to offering health insurance coverage.

One requirement ALEs must follow is the affordability requirement that ensures your employer-sponsored coverage is affordable to your full-time employees. Recently, the IRS made changes to these requirements, influencing how much employers need to contribute to their eligible employees’ health coverage.

While this affordability rate applies to employers offering traditional group coverage, it also applies to those offering an individual coverage health reimbursement arrangement (ICHRA). In this article, we’ll review what the affordability calculation is for 2024 and what your options are if you’re found with an unaffordable plan.

While this post describes how to calculate affordability manually, you can also use our online ICHRA affordability calculator to streamline this process and get recommendations on whether employees should opt in or opt out.

Get our guide on how to offer health benefits with a small budget.


What is the affordability requirement?

The Affordable Care Act's (ACA) affordability rule represents the highest percentage of an employee's household income that they can be expected to pay for their monthly premium to be considered affordable. This is based on the least expensive employer-sponsored plan offered by an organization that meets minimum essential coverage (MEC).

This requirement was put in place to make sure that employees have access to affordable health coverage through their employer. In 2023, the affordability standard was 9.12%. So that meant in order for a plan to be considered “affordable,” employees couldn't be expected to pay more than 9.12% of their household income for their health coverage.

Employers have no way of knowing what their employees' household income is, so “safe harbors” were put in place as benchmarks to help employers determine if their plans are affordable. The most commonly used safe harbor for affordability determination is the federal poverty level (FPL) safe harbor.

The FPL safe harbor gives employers a maximum premium amount for employee contributions for that year. For 2023, the FPL safe harbor dictated that an employee must pay no more than $103.28 a month in order for the health plan to be considered affordable.

What changes did the IRS make to the affordability requirement for 2024?

While the affordability requirement for 2023 was 9.12%, the IRS lowered it1 to 8.39% for 2024. That means employees are expected to contribute even less to their health coverage than before in order for an employer-sponsored plan to be considered affordable.

In addition, the FPL safe harbor amount changed slightly from $103.28 per month for the employee's maximum contribution to a monthly health insurance premium to $101.94 for the mainland U.S. So as long as employees aren't paying more than $101.94 per month for their premium in 2024, the plan is automatically considered affordable according to the ACA's standards.

It's important to note that if you have a non-calendar year plan, you will continue to use the 9.12% affordability threshold to determine affordability in 2024 until your new plan year starts.

That also means that non-calendar year plans won't be able to calculate the FPL safe harbor contribution limit for plan years beginning after January 1, 2024, until the Department of Health and Human Services issues the 2024 FPL guidelines. This usually happens in January or February each year.

What does the IRS lowering the affordability requirement mean for my organization?

The IRS lowering the affordability requirement means that a health plan that was considered affordable in 2023 may not be in 2024. So even if you offer the same exact health plan in 2024 as you did in 2023, your plan could suddenly be unaffordable.

In order for your plan to be considered affordable in 2024, you'll need to ensure that your plan doesn't require any of your employees to pay more than 8.39% of their annual household income, (or $101.94 a month if you're using the FPL safe harbor).

If you're not using the FPL safe harbor, you can calculate affordability based on your employee's rate of pay, which is the hourly rate multiplied by 130 hours per month as of the first day of the plan year or, for salaried employees, 8.39% of the monthly salary as of the first day of the 2024 coverage period.

How to calculate ICHRA affordability

To be considered affordable according to the ruling, the cost of health insurance for an employee must not be more than 8.39% of the employee’s household income. The lowest-cost silver plan on the local exchange is the standard for the calculation with an employer’s ICHRA contributions being subtracted from the premium.

That means the monthly premium for the lowest-cost silver plan, minus the ICHRA monthly allowance being offered, should not exceed 8.39% of the employee’s household income for the month. If this requirement is met, the ICHRA is considered affordable.

Let’s take a look at the calculation.


Household income * .0839 = X

X/12 = Y

Lowest-cost silver plan - Y = minimum affordable ICHRA monthly allowance


Derrick, an employee at Big Build Construction, has a household income of $45,000. His employer is offering an ICHRA. The lowest-cost silver plan in his area is $550. The calculation for affordability in this case is:

$45,000 * .0839 = $3,775.50

$3,775.50 / 12 = $314.63

$550 - $314.63= $235.37

In this scenario, the lowest allowance that can be considered affordable to the employee is $235.37.

This formula can be used to calculate the affordability of any allowances your company is considering for a specific employee class.

What are my options if my health plan won't be considered affordable anymore?

If your current employer-sponsored health plan will no longer be considered affordable for your employees in 2024, you have two options, typically known as “play” or “pay”: 

  • Play: Increase your employer contributions so the plan is considered affordable with the new requirements.
  • Pay: Potentially pay a penalty for not offering an affordable plan.

 Let's go over each in more detail.


If you choose to “play,” then you'll adjust your contributions for the lowest-cost, self-only plan for the 2024 year until your employees are no longer paying more than 8.39% of their household income.

This is your best option if you can afford to increase your contributions and want to avoid any potential penalties for not offering affordable coverage.


If you choose to “pay,” then you'll simply offer an unaffordable plan and pay the penalty for failing to offer your full-time workers with MEC that meets affordability and minimum value thresholds.

However, keep in mind that not all ALEs are subject to penalties for not offering affordable coverage. While ALE status is given to any organization that has 50 or more FTEs, penalties are only given to organizations that have more than 30 full-time employees—not full-time equivalents—and at least one of those employees receives federal tax subsidies for their health insurance.

So if you have 30 or fewer employees, you may choose to continue offering the plan you have, even if it's considered unaffordable in 2024, without suffering any consequences.

However, if you do have more than 30 full-time employees, there are two penalties, also known as employer shared-responsibility payments (ESRP) enforced by the IRS:

  • The Section 4980H(a) penalty, or the A penalty:
    • This applies when an ALE doesn't offer MEC to at least 95% of its full-time employees in any given calendar month, and at least one full-time employee receives a premium tax credit to help pay for coverage through an ACA marketplace exchange.
    • The 2023 A penalty is $240 per month ($2,880 annualized), multiplied by all full-time employees (minus the first 30). The IRS has yet to release figures for 2024.
    • This applies when an ALE doesn't offer MEC to at least 95% of its full-time employees in any given calendar month, and at least one full-time employee receives a premium tax credit to help pay for coverage through an ACA marketplace exchange.
  • The Section 4980H(b) penalty, or the B penalty:
    • This applies when an ALE offers coverage to at least 95% of full-time employees, but each full-time employee was not offered an option of "minimum essential coverage" that was "affordable" and provided "minimum value." The penalty is triggered when a full-time employee of an ALE declines an offer of noncompliant coverage and instead enrolls in subsidized coverage on the ACA marketplace exchange.
    • The 2023 B penalty is $360 per month ($4,320 annualized) for each full-time employee that receives subsidized coverage on the ACA marketplace exchange. While the IRS has yet to release figures for 2024, they're expected to increase.


For ALEs, paying attention to changes like these is essential to ensure you're offering an affordable plan so you avoid hefty penalties. If you're looking to offer an affordable ICHRA, PeopleKeep can help you stay on top of all the relevant regulations that impact your health plan coverage to make sure you always have compliant coverage for your employees.

  1. https://www.irs.gov/pub/irs-drop/rp-23-29.pdf

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Chase Charaba

Chase Charaba is the content marketing manager at PeopleKeep. He started with the company as a content marketing specialist in early 2022. Chase has written more than 350 blog posts for various companies and personal projects throughout his career. He’s worked for digital marketing agencies, in-house marketing teams, and as the editor for national award-winning high school and college newspapers. He’s also a YouTuber, landscape photographer, and small business owner.