How do contribution strategies affect ACA affordability calculations?

Your contribution strategy, whether you pay a fixed dollar amount or a percentage of premiums, directly affects whether your plan is considered “affordable” under the Affordable Care Act (ACA). Large employers must offer affordable Minimum Essential Coverage (MEC) that also provides Minimum Value (MV) to avoid penalties.

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ACA affordability applies only to employee-only coverage
The ACA affordability test measures the employee’s cost for self-only coverage under your lowest-cost plan that meets MEC and MV standards. It does not include the cost of dependent or family coverage.

• Key rule: In 2024, coverage is considered affordable if the employee’s required contribution for self-only coverage is no more than 8.39 percent of their household income.

Because this threshold changes each year, your contribution strategy should be reviewed and adjusted annually.

How contribution methods affect affordability over time

• Percentage-based contributions: Affordability stays consistent because your share increases in proportion to rising premiums.
  
  • Example: If employee-only coverage costs $500 per month and you cover 75 percent, the employee pays $125 (6.25 percent of a $24,000 income), which is affordable under ACA rules.
  • Best for: Employers who want automatic compliance and consistent affordability.
• Fixed-dollar contributions: Affordability can decrease if premiums rise but your contribution stays the same.
  
  • Example: If premiums increase from $500 to $600 and you still contribute $400, the employee now pays $200 (10 percent of a $24,000 income), which exceeds ACA limits.
  • Best practice: Review and adjust fixed-dollar contributions every year to stay within ACA affordability thresholds.
    
    

Use ACA safe harbors to simplify compliance
Employers do not have access to employees’ total household income, so the IRS provides three approved “safe harbor” methods:

• W-2 Safe Harbor: Based on Box 1 wages from each employee’s W-2.
• Rate of Pay Safe Harbor: Based on hourly rate multiplied by 130 hours for full-time employees.
• Federal Poverty Line (FPL) Safe Harbor: Based on a national income benchmark and is the simplest, most predictable option for most employers.
  Best practice: The FPL safe harbor is the easiest way to ensure compliance when contribution rates are set at an appropriate level.
  
  

Designing contributions for compliance and stability

• Percentage-based contributions maintain affordability automatically but may increase employer spending if premiums rise sharply.
• Fixed-dollar contributions provide predictable budgets but require active monitoring to remain compliant.

Balanced approach: Use a fixed-dollar contribution aligned with the FPL safe harbor and adjust annually.

Part-time and variable-hour employees
ACA affordability testing applies only to full-time employees (those working 30 or more hours per week). You can still offer coverage to part-time employees, but maintain consistent contribution rules within each class to comply with ERISA and IRS regulations.

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Vitable helps employers stay compliant while managing costs by pairing affordable, $0 primary care with any plan type, including MEC, HDHP, or ICHRA. Every member receives unlimited virtual and in-home visits, mental health support, and prescription access at a flat rate. This keeps coverage meaningful, affordable, and compliant.

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• The ACA affordability test applies only to self-only coverage.
• Percentage-based contributions maintain affordability automatically.
• Fixed-dollar contributions require annual review.
• Use ACA safe harbors, such as the FPL method, to simplify documentation and compliance.
  
  

With Vitable’s $0 primary care model, employers can meet ACA requirements while keeping benefits affordable, effective, and valuable for every employee.

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