The Affordable Care Act (ACA) has transformed how businesses approach health benefits for workers. Since becoming law, it has required applicable large employers (ALEs) to offer their employees affordable health insurance coverage.
The Internal Revenue Service (IRS) determines affordability annually based on specific regulations that directly impact the financial dynamics of businesses nationwide. As we look toward 2026, understanding the projected affordability rate adjustments is crucial for strategic planning, especially when determining individual coverage health reimbursement arrangement (ICHRA) allowances.
In this article, we’ll cover the ACA affordability rate for 2026 and how it affects employer-sponsored health coverage.
In this blog post, you’ll learn:
- How the 2026 rate compares to the 2025 ACA affordability threshold.
- How it impacts employers who offer ICHRAs.
- How to stay in compliance with employer mandate rules.
What are the key ICHRA compliance requirements for employers?
What is the ACA affordability rate for 2026?
The 2026 ACA affordability threshold1 has increased to 9.96%, a jump from the 9.02% rate set in 2025. For ALEs, this means the maximum employee share of the premium for self-only coverage that keeps their employer-sponsored plan “affordable” under the ACA is now 9.96% of the employee’s household income. In other words, employees should never pay more than 9.96% of their household income for self-only health coverage.
This is the second year in a row that the affordability requirement has increased, meaning that the IRS expects employees to contribute more to their premiums. Prior to 2025, the IRS generally lowered the limit each year, meaning employers had to contribute more.
If an employer offers a non-calendar year plan, they should continue using the 9.02% affordability threshold until the new plan year begins.
What does this rate increase mean for employers?
This increase can impact employer-sponsored coverage costs, potentially allowing for higher employee contributions while still meeting affordability rules. Since the new affordability rate is higher than in 2025, organizations that already satisfy the 2025 affordability requirements would continue to do so in 2026 if they kept their benefits the same (assuming wages are the same).
IRS Revenue Procedure 2025-25 also raises the penalty amounts for employers who fail to comply with the employer shared responsibility provisions (ESRP) of the Patient Protection and ACA. This is commonly known as the employer mandate.
Increased cost flexibility
In 2026, the ACA affordability percentage increases to 9.96%, up from 9.02% in 2025. This means that, in general, employees could be responsible for a slightly larger share of their health insurance premiums because coverage is considered unaffordable under ACA rules. This, in turn, means employers may not need to contribute as large a portion toward their premiums. However, many employers won’t raise their employees’ contribution percentage. Some may keep costs the same or lower them to help their employees, so the actual impact varies from one employer to another. Still, this may make it easier for small employers to offer a benefit in 2026.
Increased penalties
In tandem with the affordability increase, the penalties for non-compliance under the employer mandate have also been adjusted for 2026, making it even more critical for employers to stay compliant.
The two 2026 ACA penalty amounts are:
- Section 4980H(a): Also known as the A Penalty, ALEs must pay a monthly penalty of $278.33 or an annual penalty of $3,340 per employee. The A Penalty applies if they fail to offer minimum essential coverage (MEC) to at least 95% of their full-time employees and their dependents.
- Section 4980H(b): Also known as the B Penalty, ALEs must pay a monthly penalty of $417.50 or an annual penalty of $5,010 per employee. The B Penalty applies if they fail to offer affordable coverage or minimum value coverage.
In either case, employers generally only pay a penalty if an employee qualifies for and receives subsidized individual health insurance coverage (like premium tax credits) as a result.
What does this rate increase mean for employers who offer ICHRAs?
With the individual coverage health reimbursement arrangement (ICHRA), employers contribute to the cost of individual employee health plans instead of purchasing a group health plan for their entire workforce.
For an ICHRA to qualify as affordable, the cost of an individual medical plan for an employee can’t be more than 9.96% of their household income. The calculation is based on the lowest-cost silver health insurance plan available on health insurance marketplaces. Employers and employees determine affordability after subtracting their ICHRA contributions from the premium.
That means the monthly premium for the lowest-cost silver health insurance plan, minus the ICHRA monthly allowance an employer offers, can’t exceed 9.96% of the employee’s household income for the month. If employers meet this requirement, the employee’s ICHRA is affordable.
How employers can comply
Employers should review their plan contributions for 2026 to ensure their employee-paid premiums do not exceed the 9.96% affordability threshold. Since employers typically don’t know each employee’s household income, they can ensure compliance using safe harbors.
There are three affordability safe harbors:
- Federal Poverty Line (FPL) Safe Harbor: The FPL Safe Harbor is most favored among employers since it’s usually the easiest to administer. This safe harbor method provides a set dollar amount for affordability, which is roughly $129.90 per month for employee-only coverage in 2026. However, using this method can result in the employee paying more for their premiums than using other methods.
- Rate of Pay Safe Harbor: The Rate of Pay Safe Harbor method determines affordability based on the employee’s hourly wage.
- Hourly employees: Multiply hourly rate × 130 hours × 9.96%
- Salaried employees: Monthly salary × 9.96%
- Form W-2 Safe Harbor: The Form W-2 Safe Harbor bases affordability on the employee’s Form W-2 wages for the year. You use Box 1 wages (annual W-2 income) to determine affordability, divided by 12 × 9.96%. This is a great method for employees who work the same number of hours each week, like salaried employees.
Conclusion
Navigating the complexities of ACA compliance is critical for employers to avoid penalties and ensure they’re providing valuable healthcare benefits to their workforce. As the 2026 ACA affordability rate looms on the horizon, employers need to stay informed and be proactive as they set their contributions.
If you or your clients want to offer an ICHRA, let the experts at Remodel Health help you offer an affordable contribution. With our ICHRA+® solution, we’ll handle the heavy lifting to ensure you’re offering a compliant health benefit.
How are employers using their ICHRAs? Get our 2024 ICHRA Report.