As we head into 2025, it’s essential for employers to stay up-to-date with the Affordable Care Act (ACA) affordability requirements. These regulations, which are designed to make sure health insurance is affordable for employees, come with strict compliance deadlines and specific reporting obligations. Understanding and meeting these requirements is critical for avoiding penalties and ensuring that your workforce has access to affordable health coverage.
What is ACA Affordability?
The ACA requires employers with 50 or more full-time employees to offer affordable health insurance to their workers. This means the insurance coverage must meet minimum essential coverage standards and be priced in a way that employees aren’t burdened with unaffordable premiums.
For a health plan to be considered “affordable” under the ACA, the employee’s share of premiums for self-only coverage must not exceed a certain percentage of their household income. For 2025, the affordability threshold is 9.02%, which is an increase from 2024’s rate of 8.39%. This increase in the affordability percentage means that employers may need to adjust their contributions to health premiums to ensure compliance.
The Safe Harbors for Determining Affordability
To help employers determine whether their health plans are affordable, the ACA offers three “safe harbors” that employers can use:
- W-2 Wages: Employers can determine affordability based on the employee’s W-2 wages from the previous year.
- Rate of Pay: This method allows employers to determine affordability based on the hourly wage or salary of an employee.
- Federal Poverty Line: Employers can also calculate affordability by using the federal poverty level (FPL) guidelines, which are updated annually.
Employers can choose whichever method best suits their workforce but must ensure the employee’s contribution for health coverage does not exceed the set affordability percentage.
Key Compliance Deadlines for 2025
Staying on top of reporting deadlines is crucial to ACA compliance. Here are some key deadlines for employers to be aware of:
- February 28, 2025: Deadline for filing ACA forms (1094-C and 1095-C) by paper if necessary.
- March 3, 2025: Deadline for distributing 1095-C forms to employees.
- March 31, 2025: E-file deadline for submitting 1094-C and 1095-C forms electronically.
- December 31, 2024: Insurance carriers must submit an attestation to the Centers for Medicare & Medicaid Services (CMS) stating that their plans do not contain gag clauses, which are prohibited under the ACA.
Impact of the Increase in the Affordability Percentage
With the affordability percentage rising to 9.02% in 2025, employers will need to be more diligent in calculating employee premiums. If premiums for self-only coverage exceed the percentage of household income, the employer could face penalties under the ACA’s employer shared responsibility provision.
Employers should review their plans and contributions to ensure that the coverage they offer meets the affordability standards. This may involve adjusting premium contributions or revising benefit structures to keep costs manageable for employees.
How Employers Can Prepare
To ensure compliance with the ACA affordability requirements for 2025, employers should:
- Review employee premium contributions: Make sure that the contribution for self-only coverage doesn’t exceed the affordability threshold.
- Use the safe harbors: Decide which method (W-2 wages, rate of pay, or federal poverty line) works best to determine affordability for your employees.
- Stay up to date with filing deadlines: Ensure all necessary forms are submitted on time to avoid penalties.
- Communicate with employees: Keep employees informed about their coverage options and any changes to their plans or premiums.
Conclusion
As we move into 2025, ACA affordability requirements remain an essential part of managing health insurance benefits for employees. By understanding the new 9.02% affordability threshold and meeting key deadlines, employers can avoid costly penalties and ensure that their workforce has access to affordable health coverage. Regular reviews of plan offerings, premium contributions, and compliance protocols are critical to staying ahead in the ever-evolving landscape of health benefits regulations.
For more detailed information on ACA requirements and deadlines, visit the official IRS ACA website or consult with a health benefits advisor to ensure your business is fully prepared.
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