The penalty for affordability in 2024, under the Affordable Care Act (ACA), is $4,460 per full-time employee when specific conditions are met.
Understanding the Affordability Penalty in 2024
This penalty is a critical component of the Affordable Care Act (ACA)'s Employer Mandate, specifically targeting situations where employers fail to offer affordable, quality health coverage to their full-time employees. It's often referred to as the "B penalty" or "Section 4980H(b) penalty."
When Does the Affordability Penalty Apply?
The penalty for affordability in 2024 is triggered under a precise set of circumstances:
- No Affordable and Minimum Value Coverage: A full-time employee is not offered health coverage that is both affordable and provides minimum value by their employer.
- Employee Chooses Marketplace Subsidy: That same full-time employee then waives the employer's offer (or lack thereof) and instead enrolls in a health plan through a state or federal Health Insurance Marketplace (also known as an Exchange), and receives a premium tax credit (subsidy) to help pay for it.
In essence, if an employer fails to meet its obligation to offer affordable, minimum value coverage, and an employee seeks financial assistance elsewhere, the employer faces this specific penalty.
Key Penalty Details for 2024
The table below summarizes the key financial impact for employers concerning the affordability penalty:
| Penalty Type | Triggering Condition | Penalty Amount (2024) |
|---|---|---|
| ACA Affordability Penalty | A full-time employee is not offered an affordable plan with minimum value, and chooses to enroll in a subsidized Marketplace plan. | $4,460 per full-time employee |
Practical Insights for Employers
To avoid the affordability penalty, applicable large employers (ALEs – generally those with 50 or more full-time equivalent employees) must proactively manage their health benefit offerings.
Here are some practical considerations:
- Regular Review of Affordability: Employers should routinely review their health plan offerings to ensure that the employee share of the premium for the lowest-cost, self-only coverage option remains below the ACA's affordability threshold for the current year. For 2024, coverage is generally considered affordable if the employee's contribution for the lowest-cost self-only coverage does not exceed 8.39% of their household income.
- Minimum Value Compliance: Verify that the health plans offered meet the minimum value standard, meaning they cover at least 60% of the total allowed cost of benefits and include substantial coverage for physician and inpatient hospital services.
- Utilize Safe Harbors: Employers can use IRS-approved affordability safe harbors (e.g., W-2 wages, rate of pay, or federal poverty line) to determine if the coverage offered is affordable for their employees. These safe harbors provide a more practical way to assess affordability without needing to know each employee's household income.
- Accurate Reporting: Maintain meticulous records of health coverage offers, acceptances, and rejections. This information is crucial for accurate reporting to the IRS via Forms 1094-C and 1095-C, which demonstrate compliance with the employer mandate.
- Consult Experts: Given the complexity of ACA compliance, it's advisable for employers to consult with benefits advisors or legal professionals specializing in employee benefits. They can provide guidance tailored to specific circumstances and help navigate reporting requirements.
