The IRS has just announced the affordability threshold for 2025’s health insurance coverage under the Affordable Care Act (ACA). At 9.02%, this is an increase from 2024’s threshold of 8.39%. This update is especially important for employers offering health benefits, particularly those providing Individual Coverage Health Reimbursement Arrangements (ICHRA). Given the way an ICHRA is structured, the affordability percentage defines whether the coverage provided is considered affordable under ACA guidelines.
With businesses preparing for open enrollment, now is the time to understand how these affordability changes will impact health benefits offerings in 2025. Here’s what employers and employees need to know, the impact it’s causing, and what to consider next.
How Affordability Relates to ICHRA
Affordability refers to the portion of an employee’s household income required to pay for health coverage after the employer’s contribution. This concept is crucial for employers designing an ICHRA offering, as failing to meet the affordability threshold could result in penalties under the ACA’s employer mandate. If employers don’t provide an affordable ICHRA, employees may seek coverage through the ACA Marketplace, potentially disqualifying the employer from offering compliant health benefits and triggering financial penalties.
For employees, affordability determines whether they can use their ICHRA contribution to cover individual health insurance or if they are eligible for premium tax credits through the ACA Marketplace. Ensuring the ICHRA is affordable helps employees access cost-effective healthcare while keeping employers compliant with federal regulations.
Understanding the 2025 Affordability Threshold
For plan years beginning on or after January 1, 2025, the IRS has set the affordability threshold at 9.02% of an employee’s household income. This percentage is used to determine if an employee’s required contribution toward health coverage meets the ACA’s affordability requirement. If the cost of coverage exceeds this threshold, the coverage is deemed unaffordable, and employees may become eligible for premium tax credits through the Marketplace.
For employers offering ICHRA, meeting this affordability threshold is critical for complying with ACA requirements and avoiding penalties. This threshold also helps employees understand if they are better off using their ICHRA benefit or seeking alternative coverage through the Marketplace.
Impact on Employers Offering an ICHRA
Employers offering ICHRA must be mindful of the affordability threshold to avoid penalties and ensure their employees can effectively use the benefits. Here’s what employers need to consider:
- ICHRA Contribution Levels – Employers must contribute enough so that the cost of individual coverage (after applying the ICHRA contribution) does not exceed 9.02% of the employee’s household income. If the contribution is too low, the plan may be considered unaffordable, exposing employers to penalties under the ACA.
- ACA Compliance and Penalties – For employers with 50 or more full-time employees, failure to meet the affordability requirement can result in penalties under the ACA’s employer mandate. To avoid this, employers should calculate their ICHRA contributions using the cost of the lowest-cost silver plan in each employee’s area, ensuring the employee’s out-of-pocket expenses remain below the 9.02% threshold. Working with a technology partner can help ensure you remain compliant and avoid penalties.
- Designing ICHRA Plans to Ensure Affordability – Employers can structure ICHRA contributions by classifying employees into different groups based on factors like full-time vs. part-time status, geographic location, or job roles. This flexibility allows businesses to tailor their benefits offerings while ensuring affordability for each group.
Impact on Employees Receiving an ICHRA
For employees, the 9.02% affordability threshold plays a key role in determining whether they should accept their ICHRA offer or consider other options through the ACA Marketplace. Here’s what employees need to know:
- Evaluating Affordability – Employees must assess whether the ICHRA contribution makes their individual health plan affordable. If the cost of the plan exceeds 9.02% of their household income, they may qualify for premium tax credits through the Marketplace, giving them more options for finding affordable coverage. Employees should weigh both options carefully to ensure the best fit.
- Maximizing ICHRA Benefits – To make the most of their ICHRA benefit, employees should select health plans that meet their needs while staying within the affordability threshold. Since silver-tier plans are often the benchmark for affordability, many employees may find them to be a good middle ground between premiums and coverage.
- Choosing the Right Plan – Employees should consider both their health needs and financial situation when selecting a plan. For some, a lower-premium, high-deductible health plan (HDHP) might be the best option, while others may prefer the more comprehensive coverage of a silver or gold plan. Understanding healthcare usage and balancing out-of-pocket costs with coverage benefits will help in choosing the right plan.
What Types of Plans Should Employees Consider in 2025?
Given the new affordability rate of 9.02%, employees should carefully evaluate their available options, focusing on how to maximize their ICHRA contribution while ensuring affordable, effective coverage.
- Silver Plans – Silver plans are often the best option for employees balancing cost and coverage. These plans offer moderate premiums and out-of-pocket expenses, making them a solid choice for those who need regular medical care and want comprehensive coverage without a high price tag.
- High-Deductible Health Plans (HDHPs) – For younger, healthier employees who rarely use medical services, HDHPs may offer the lowest premiums. Paired with a Health Savings Account (HSA), these plans can allow employees to save for medical expenses while using their ICHRA contributions to cover premiums.
- Bronze Plans – Employees who prioritize lower monthly premiums may consider bronze plans, although they typically come with higher deductibles. Bronze plans are a good option for those who expect infrequent medical care but want to keep their coverage affordable.
How Health Plans Can Support ICHRA in 2025
Health plans play a pivotal role in ensuring both employers and employees can effectively navigate ICHRA under the new affordability guidelines. Health plans can provide support in several ways:
- Tailored Plan Offerings – Health plans can work with employers to offer health plan options tailored to the 9.02% affordability threshold, ensuring employees have access to plans that fit within the affordability guidelines while still meeting their healthcare needs.
- Affordability Tools for Employers – Health plans can provide tools and resources to help employers calculate affordability based on the latest IRS guidelines. This includes cost estimators and up-to-date information on plan premiums by geographic region, helping employers design compliant, affordable health offerings.
- Educational Resources for Employees – Health plans can help employees understand how to maximize their ICHRA benefits by offering resources that guide them through plan selection. Decision-support tools and educational materials empower employees to make informed choices about their health insurance options.
- ACA Compliance Support – To simplify compliance, carriers can provide ongoing support to employers, helping them stay current with changes to ACA rules and affordability rates. By partnering with third-party administrators or offering direct compliance guidance, carriers help employers maintain affordable, compliant ICHRA plans.
Ensuring Affordable and Effective Health Coverage in 2025
With 2025 Open Enrollment quickly approaching, employers and employees must understand how ICHRA and the new affordability rate will impact health coverage decisions. Employers should design their ICHRA contributions carefully to ensure affordability, while employees need to assess whether their ICHRA benefit or Marketplace options best meet their needs. Health plans provide crucial support in this process, offering tools, resources, and customized plans to make ICHRA administration smoother and more effective.
At W3LL, we’re committed to helping the entire healthcare ecosystem navigate these changes. Whether it’s our API and EDI connections or our comprehensive platform, our technology enables you to offer ICHRA with ease and provide a user friendly shopping & enrollment experience for employees. We have the tools to ensure you stay compliant with the latest changes while providing a seamless user experience. W3LL is here to help. Contact us today to get started.
