In Revenue Procedure 2026-26 , the IRS announced a new Affordable Care Act (ACA) affordability percentage of 10.22% for 2027 employer health care plans. The increased percentage gives employers more room to set employee premiums while keeping coverage affordable under the applicable safe harbor.

Background

Under IRC Section 36B, individuals may qualify for a premium tax credit (PTC) if, among other conditions, their employer does not offer affordable coverage that provides minimum value (i.e., premiums exceed an indexed percentage of household income). Current regulations treat family coverage as affordable if the employee's self-only coverage is affordable.

An Employer Shared Responsibility Payment (ESRP) may be triggered only when a full-time employee enrolls in coverage through a state or federal health care marketplace and qualifies for premium support through a PTC under IRC Section 36B.

Applicable Large Employers (ALEs) may rely on three "affordability safe harbors" to demonstrate that coverage is "affordable": (1) rate of pay, based on hourly rate or monthly salaried rate; (2) W-2, based on gross income reported in Box 1 of Form W-2; and (3) federal poverty line (FPL). If the employee contribution for self-only coverage satisfies one of these safe harbors, the ALE generally will not be liable for an ESRP based on an unaffordable offer of coverage, even if the employee qualifies for a PTC.

Affordability percentage increases

An annually indexed affordability percentage is used to determine whether an employer's self-only coverage satisfies the ACA affordability rules. For plan years beginning on or after January 1, 2027, the indexed affordability percentage is 10.22% (compared with 9.96% in 2026, 9.02% in 2025, and 8.39% in 2024), allowing for a higher employee premium in the affordability calculation.

Employers using the FPL safe harbor will need an employee-only premium rate of $135.93 or less for plans beginning in 2027 in the lower 48 states and Washington, D.C. Employers relying on the Rate of Pay or W-2 safe harbors should consider reviewing their premiums in light of the 10.22% threshold.

Implications

Employers that base health insurance premiums on ACA affordability rules should consider reviewing their rates carefully with their brokers and/or consultants as they finalize open enrollment for the Fall.