Preparing for the 2027 ACA Affordability Requirements

As employers prepare their health plan offerings for 2027, reviewing employee premium contributions should be an important part of the planning process. Under the Affordable Care Act (ACA), applicable large employers (ALEs), generally those with 50 or more full-time employees, including full-time equivalents, must offer affordable, minimum-value health coverage to their full-time employees and their dependents to avoid potential employer shared responsibility penalties.

For plan years beginning in 2027, the ACA affordability percentage increases to 10.22%, up from 9.96% in 2026. Although the higher percentage provides employers with some additional flexibility in establishing employee premium contributions, it does not eliminate the need to evaluate affordability, review plan designs, and coordinate benefits administration with payroll.

Understanding the 2027 Affordability Threshold

Under the ACA, employer-sponsored health coverage is generally considered affordable if the employee’s required contribution for the lowest-cost self-only coverage that provides minimum value does not exceed a specified percentage of the employee’s household income.

For 2027, that percentage is 10.22%. This means an employee’s required contribution for the lowest-cost qualifying self-only coverage generally cannot exceed 10.22% of household income for the coverage to be considered affordable.

Importantly, affordability for purposes of the employer shared responsibility provisions is determined using the cost of self-only coverage, not the cost of covering a spouse or dependents. It is also based on the lowest-cost qualifying plan available to the employee, even if the employee chooses a more expensive option.

Reviewing the ACA Affordability Safe Harbors

Because employers generally do not know their employees’ household incomes, the IRS permits employers to use three affordability safe harbors to determine whether their coverage meets ACA requirements.

• Form W-2 Safe Harbor: Affordability is evaluated using the employee’s Form W-2 Box 1 wages, subject to applicable rules.
• Rate of Pay Safe Harbor: Affordability is calculated using an employee’s hourly rate of pay or monthly salary. For hourly employees, the calculation generally uses 130 hours per month.
• Federal Poverty Line Safe Harbor: Affordability is based on the applicable federal poverty guideline rather than the employee’s actual compensation.

Employers may use different safe harbors for reasonable categories of employees, provided the applicable rules are followed consistently.

Before finalizing 2027 contributions, employers should review which safe harbor they use and confirm that the proposed employee contributions satisfy the applicable calculation. Employers should not assume that coverage affordable under one safe harbor will necessarily satisfy another.

Evaluating Employee Premium Contributions

The increase in the affordability percentage may allow employers to increase employee contributions while remaining within ACA limits. However, affordability should be evaluated before employee contribution rates are finalized.

For example, under the Rate of Pay safe harbor, an employee earning $15 per hour would have a monthly affordability limit of approximately $199.29 in 2027, calculated as $15 multiplied by 130 hours and the 10.22% affordability percentage. The comparable monthly limit for 2026 is $194.22.

While this example illustrates the additional flexibility available in 2027, employers should consider how their contribution structures affect employees at different compensation levels.

A uniform monthly employee contribution may be affordable for higher-paid employees but exceed the allowable threshold for lower-paid employees. Employers with hourly, variable-hour, or commissioned employees should pay particular attention to how compensation differences may affect their affordability calculations.

How Plan Design Can Affect Affordability

Employers offering multiple medical plan options should identify the lowest-cost self-only plan that provides minimum value. That plan generally serves as the basis for evaluating affordability under the ACA’s employer shared responsibility provisions.

An employer does not necessarily need to make every medical plan affordable. However, offering at least one affordable, minimum-value option to full-time employees is an important part of avoiding potential affordability-related penalties.

Employers should also review other features of their benefit programs that may affect affordability calculations. Depending on their structure, wellness incentives, opt-out payments, and certain employer-funded health arrangements can affect the employee contribution amount used for ACA purposes.

These considerations should be evaluated before finalizing plan designs and communicating employee contribution rates.

Coordinating HR, Payroll, and Benefits Administration

ACA affordability compliance involves more than calculating employee contributions during open enrollment. Employers must also ensure that the approved contribution rates are accurately implemented and that employee eligibility and coverage information remain consistent throughout the year.

HR, Payroll, and Benefits Administration should coordinate to verify that employee premium deductions match the approved contribution rates and that changes in compensation, employment status, or eligibility are properly reflected in their systems.

For example, an employer may establish an affordable contribution rate during open enrollment but encounter problems if incorrect payroll deductions are implemented or an employee’s eligibility information is not updated following a change in employment status.

Employers should also maintain documentation supporting their affordability calculations, selected safe harbors, employee contribution rates, and coverage offers. These records can be valuable when preparing ACA reporting forms or responding to an IRS inquiry.

Preparing for the 2027 Plan Year

The higher ACA affordability percentage provides employers with additional flexibility, but it should not be viewed as a reason to simply carry forward existing contribution structures without review.

Before implementing 2027 health coverage, employers should evaluate their proposed employee contributions, confirm that at least one qualifying coverage option satisfies the applicable affordability requirements, and review how their selected safe harbors apply to different employee populations.

Equally important, employers should verify that their benefits administration and payroll systems are configured to implement the approved rates accurately.

By incorporating affordability reviews into the annual benefits planning process, employers can identify potential compliance concerns before open enrollment, reduce administrative errors, and better prepare for their ACA reporting obligations.