2023 ICHRA Affordability Rates are here. These are important in understanding what is considered an Affordable ICHRA for employees and what amount employers need to budget for to offer a helpful benefit (and avoid penalties, if you're a large employer). Here's what we know so far about ICHRA 2023!
Individual Coverage HRAs have taken off in popularity since they were introduced in 2020.
In fact, ICHRAs have seen triple digit growth since their inception, according to a recent HRA Council Report.
What is the ICHRA affordability threshold for 2023?
SHRM reports that the IRS has announced the 2023 health plan affordability threshold, which is used to determine whether or not an employer's lowest-premium health plan meets the Affordable Care Act's (ACA's) affordability requirement. This also applies to Individual Coverage HRAs.
The new ICHRA plan affordability rate is 9.12% of an employee's household income, which is down slightly from 9.61% last year.
The affordability threshold rate was published in the IRS Revenue Procedure 2022-34, which came out last month.
Here's how the math plays out.
Affordable HRA Contribution > Lowest Cost Silver Plan - (9.12% * Employee Household Income)
Wondering what that means?
Here's the gist.
If an ICHRA is considered affordable, employees may not be eligible for some or all of any premium tax credits that they may otherwise be eligible for. If you're a large employer (over 50 employees), you must offer an affordable ICHRA to avoid penalties for not providing insurance.
If your ICHRA is considered unaffordable, employees may want to consider opting out and receiving any premium tax credits they are otherwise eligible for.
Heads up: if an employee accepts an unaffordable ICHRA, they may no longer be eligible for some or all of their premium tax credits, even if it makes them worse off. Use our ICHRA Affordability calculator to help!
How is ICHRA affordability calculated?
An affordable ICHRA contribution means that the monthly reimbursement amount offered by an employer is of greater value than the lowest cost silver, self-only plan minus 9.12% of an employees household income. These rates will vary based on location.
What is the lowest cost silver plan? The lowest cost silver plan in a certain area is determined by the employee’s primary residence.
How is employee household income calculated? Determining the employee household income is based on information provided on Box 1 of the employee’s W-2 form. The rate of pay is determined with the assumption that the employee works at least 130 hours per month. Lastly, if it is affordable at the Federal Poverty Level, then the plan is affordable.
We can help you figure out how much you have to offer for your ICHRA to be affordable with our ICHRA Affordability Calculator.
The IRS recognizes that it may be difficult for an employer to collect all of the information needed to accurately determine affordability for each employee. As a result, the IRS provides several "safe harbors" or assumptions that employers can make to determine affordability.
→ For a complete list and examples, please see the "Affordability" section of our ICHRA Guide.
If you utilize the safe harbors for your plan design, your employee's actual information may determine the HRA to be unaffordable for them, and they could still opt out of the ICHRA and instead accept tax credits.
We will help your employees determine whether your company’s ICHRA is affordable to them during your onboarding process.
This year, the hammer penalty (also know as IRS Code Section 4980H(a) penalty) is $240, which comes out to an annualized amount of $2,880, per employee. Let's avoid that, shall we?
→ For more information, read our blog titled ICHRA, affordability, and premium tax credits.
What is the affordability threshold?
The affordability threshold, which informs an employer's potential liability to meet the ACA's shared-responsibility requirement, is adjusted year to year based on health plan premium growth relative to income growth. There are penalties for employers that do not meet the affordability threshold when they have more than 50 employees.
Are you wondering what happens to your employees' premium tax credits with ICHRA?
Tax credits are unavailable to employees if they are offered an affordable ICHRA.
Large employers have to offer affordable ICHRAs if they want to satisfy the corporate mandate, but what about small employers (typically under 50 employees) not subject to the mandate?
Affordability matters for small employers too.
Affordability impacts the small business employees' ability to secure premium tax credits to help pay for their premiums:
- If an ICHRA is affordable, employees are not eligible for tax credits
- If an ICHRA is unaffordable, employees can choose either the ICHRA or tax credits
Can employees claim premium tax credits and participate in ICHRA?
As mentioned before, employees cannot accept premium tax credits and participate in an ICHRA at the same time. That's what we call double dipping. There will be some pretty serious tax penalties if they choose to go this route.
To make that decision, however, they have to check and see if their ICHRA offer is, in fact, affordable. If it is, they cannot accept tax credits. If it's unaffordable, the employee can choose what's best for them, between the tax credits or the ICHRA.
Note that even if an employee opts out of an ICHRA and the ICHRA is considered affordable, they cannot claim the PTCs for themselves or their family members.
Need ICHRA affordability help?
Our team is ready to help you design an affordable ICHRA that will be a true benefit to your employees. Just chat with us on the screen! We'd love to help.
Additional resources →
- Learn about ICHRA Rules
- Learn about ICHRA Classes
- Learn about ICHRA Requirements
- Learn about ICHRA Regulations
- Learn about ICHRA Plan FAQs
- Learn about our ICHRA administration platform
This post has been updated to reflect the latest regulatory and policy changes in 2023.
I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!