The 2025 open enrollment season for employee benefits is swiftly approaching. With newly released IRS guidance, employers should review the cost of their group health plan(s) to ensure affordability. Companies that rely on ACA safe-harbor calculations may be able to increase employee contributions for the lowest-cost, self-only plan option in 2025.

ACA Affordability Standards

An employer that averaged 50 or more full-time equivalent employees in the prior calendar year—an Applicable Large Employer, or ALE—must offer affordable, minimum-value coverage to at least 95% of its full-time employees (who average 30 hours per week) and their dependents. The employer can choose from three safe harbors to determine whether its benefit offering may be considered affordable:

• • W-2 Wages: In this method, the employee contribution is deemed affordable if it does not exceed 9.02% of that employee’s Form W-2 wages from Box 1.
  • Rate of Pay: In this method, an hourly employee’s contribution will be treated as affordable if it does not exceed 9.02% of that worker’s hourly rate x 130 hours. For a Portland-based minimum-wage hourly worker (currently $15.95/hour), the maximum affordable contribution would be $187.03 per month. For a salaried worker, the employee contribution would be considered affordable if it does not exceed 9.02% of that person’s monthly salary. Since the salary-exempt threshold will increase to $58,656 as of January 1, 2025, this means a salaried employee should not be expected to pay more than $440.90/month.
  • Federal Poverty Line: Using this method, an employer would not charge any employee more than 9.02% of the declared FPL, which is currently $15,060 for the mainland U.S. = $113.20 per month.

Based on the three different safe-harbor methods (as explained above), employers in the Pacific NW, where minimum wage rates are higher than the federal minimum of $7.25 per hour, using the Rate of Pay safe harbor method would allow for greater contributions.

Employer Shared Responsibility Payments

Employers who fail to offer affordable coverage are subject to two types of ESRP penalties:

“Part A Penalty”—If an ALE fails to offer minimum essential coverage to substantially all full-time employees, and one full-time employee purchases individual coverage from the exchange and receives a premium subsidy, the employer will be penalized $241.67 per full-time employee (less the first 30 employees) for each month it failed to offer minimum coverage. As an example, an employer with 50 full-time employees that failed to offer minimum essential coverage to at least 48 employees (95% of 50) could be penalized $58,000 for the year if a single full-time employee purchased insurance on the exchange and received a premium subsidy.

“Part B Penalty”—If an ALE neglects to offer affordable minimum essential coverage to substantially all full-time employees, and one full-time employee purchases individual coverage from the exchange and receives a premium subsidy, the employer will be penalized $362.50 per month for each individual who received the premium subsidy.

Open Enrollment Season

As insurance plan renewal rates for 2025 Open Enrollment are starting to arrive, employers will be reviewing how much to charge a single employee for the lowest-cost plan offering.  Employers that charge in excess of safe-harbor amounts risk fines in the coming year.

For employers in Oregon and Washington, where minimum wage rates are more than double the federal amount, using the Rate of Pay safe harbor method would allow for the greatest employee charge.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.