Key Takeaways:
- The ACA affordability threshold for 2026 will rise to 9.96%, up from 9.02% in 2025 — giving employers more flexibility in ICHRA contributions but shifting more of the costs to employees
- The estimated Federal Poverty Level (FPL) safe harbor contribution limit increases to $129.89/month, but rising premium payments may still cause affordability issues
- Employers should recalculate affordability and adjust their ICHRA strategies ahead of 2026 Open Enrollment (OE)
The IRS announced a key update affecting employers’ 2026 health benefits strategy: the ACA affordability threshold for coverage is increasing from 9.02% to 9.96% of household income.
For ICHRA plans, this percentage determines whether the health coverage offered is considered affordable under ACA rules, directly influencing employer contribution levels and employee eligibility for premium tax credits.
For employers offering an Individual Coverage Health Reimbursement Arrangement (ICHRA), that increase may open the door to more flexible contribution strategies — but it comes with a few cautions.
Affordability remains one of the biggest compliance checkpoints for ICHRA under the ACA’s employer mandate. Let’s break down what it means and what employers and brokers should start doing to stay ahead.
How ACA Affordability Works with ICHRA
For ICHRA plans, affordability is measured by comparing:
- The employee’s required out-of-pocket premium for self-only coverage (after applying the employer’s ICHRA contribution)
- Against 9.96% of their household income (or a safe harbor equivalent)
Employers use one of three affordability “safe harbors” (FPL, Rate of Pay, or W-2) to simplify compliance without needing to collect actual income data.
First, a Quick Refresher: What Is the ACA Affordability Threshold?
The ACA affordability threshold defines the maximum percentage of an employee’s household income that can be required for self-only health coverage. If the employee’s share of the premium exceeds this percentage, the coverage is deemed unaffordable under ACA rules.
For 2026, the IRS has set this required contribution percentage at 9.96%, up from 9.02% in 2025.
Applicable Large Employers (ALEs) are required to offer affordable, minimum-value coverage or face penalties under the ACA’s employer mandate. If the employee’s share of the premium for self-only coverage exceeds that threshold, the coverage is considered unaffordable — and the employer may be penalized if the employee instead receives for a premium tax credit under the ACA.
How the New Threshold Impacts ICHRA Affordability
With an ICHRA, employers can elect to reimburse employees for individual health insurance premiums and qualified medical expenses instead of offering a traditional group health plan. But to remain compliant under ACA rules, the ICHRA must offer affordable coverage as defined by the annual IRS affordability percentage.
For ICHRAs, affordability is determined by comparing:
- The employee’s required monthly contribution — the portion of the lowest-cost silver plan premium for self-only coverage in the employee’s ACA rating area (after applying the ICHRA reimbursement)
- Against 9.96% of the employee’s income
If the post-reimbursement premium cost exceeds that limit, the coverage is considered unaffordable — and the employer could be penalized if the employee instead receives premium tax credits.
“This year’s likely higher individual premiums serve as a reminder that ICHRAs aren’t ‘set it and forget it’—but that’s exactly what makes them powerful. With the right adjustments, employers can offer modern, flexible benefits that meet evolving employee expectations.” – Josh Schultz, Strategic Engagement Manager at Softheon
2026 Safe Harbor: The New Math
To simplify affordability testing, many employers use the FPL safe harbor, which assumes a baseline income level for all employees regardless of their actual household income.
Here’s how the numbers shake out for 2026, according to BenefitsPro:
- 2025 FPL monthly safe harbor limit: $117.64
- 2026 FPL monthly safe harbor limit (estimated): $129.89
That means employers can require employees to contribute nearly $130/month toward self-only coverage and still meet the affordability standard — if using the FPL safe harbor.
Rising Premiums Could Undermine Affordability Gains
A recent KFF analysis shows that ACA Marketplace insurers are requesting a median 15% rate increase for 2026 — the largest in over five years. The reasons? Expiring enhanced tax credits, inflation in medical service costs, and new tariffs on drugs and medical supplies.
So while the IRS is allowing higher employee contributions via the 9.96% threshold, those gains may be offset by higher plan costs. Affordability concerns are especially high in states or rating areas with fewer carriers or limited plan competition.
What Employers Should Do Now
With OE26 planning already underway, here are key steps employers should take to ensure ICHRA strategies remain ACA-compliant and employee-friendly in 2026:
- Recalculate Affordability Using Updated Thresholds
Use the 9.96% figure along with current silver plan rates (and expected 2026 increases) to test your ICHRA contribution models. Don’t forget to apply by rating area and employee class if using a segmented contribution strategy. - Revisit Your Use of Safe Harbors
Consider whether the FPL safe harbor still makes sense for your workforce or if the Rate of Pay or W-2 method might be more appropriate. Each has pros and cons, especially if you have widely varying wages or locations. - Monitor Marketplace Premium Filings
Stay informed as final 2026 premium rates are released this fall. Even slight increases in benchmark silver plans can affect affordability thresholds and your ICHRA strategy. - Adjust Contribution Strategies Thoughtfully
Yes, you can shift more premium costs to employees under the new rule. But should you? Consider the impact on recruiting, retention, and employee satisfaction, especially as benefits become a bigger part of compensation conversations. - Work with Tech Partners Who Understand ICHRA
Administering ICHRA at scale requires precision. From contribution modeling to subsidy eligibility tracking to Marketplace integration, choose a partner that helps you stay compliant and keeps the employee experience seamless.
At W3LL, we help employers and brokers deliver ICHRA the right way — with compliant contribution modeling, seamless Marketplace plan data, and a user-friendly platform that makes enrollment and renewals effortless.
Want to stay up to date on how policy changes impact ICHRA strategy? Subscribe to W3LL’s monthly newsletter for compliance updates, expert insights, and practical tools.
