The Affordable Care Act (ACA) has transformed how businesses approach worker health benefits. Since the employer mandate took effect in 2015, it has required applicable large employers (ALEs) to offer employees affordable health insurance coverage.
The 2027 ACA affordability threshold is 10.22% of an employee’s household income, up from 9.96% in 2026.1 The Internal Revenue Service (IRS) determines affordability annually based on specific regulations that directly affect businesses' financial dynamics nationwide.
As we head into 2027, understanding the affordability rate adjustments is crucial for strategic planning, especially when determining employee contribution amounts for a CHOICE Arrangement, formerly known as an individual coverage health reimbursement arrangement (ICHRA).
In this blog post, you’ll learn:
As outlined in IRS Rev. Proc. 2026-26, the 2027 ACA affordability threshold increased to 10.22%, up from 9.96% the previous year. For ALEs (those with 50 or more full-time equivalent employees), this means the maximum employee share of the premium for self-only coverage that keeps their employer-sponsored plan "affordable" is now 10.22% of the employee's household income. In other words, employees should never pay more than 10.22% of their household income for self-only health coverage.
The threshold applies to coverage starting January 1, 2027. If an employer offers a non-calendar-year plan, it should continue using the 9.96% affordability threshold until their new plan year begins.
This is the third year in a row that the affordability requirement has increased, meaning that the IRS expects employees to contribute more to their premiums. Before 2025, the IRS generally lowered the limit each year, so employers had to contribute more.
This increase can impact employer-sponsored coverage costs, potentially allowing for higher employee contributions while still meeting affordability rules. Because the new affordability rate is higher than in 2026, organizations that already meet the 2026 affordability requirements would continue to do so in 2027 if they keep their benefits the same (assuming wages are the same). However, given insurance rate and wage increases, employers should recalculate affordability for the new plan year rather than assume their existing employee contributions will automatically meet the 2027 requirements.
IRS Rev. Proc. 2026-22 also raises the penalty amounts for employers who fail to comply with the employer shared responsibility provisions (ESRP) of the Patient Protection and ACA2. This is commonly known as the employer mandate.
Employers can charge a slightly higher portion of their employees' health coverage premiums than in 2026, as long as it doesn't exceed the new 10.22% threshold. This may make it easier for small employers to offer a benefit in 2027.
Along with the affordability increase, the ACA employer mandate penalties have also been adjusted for 2027, making it even more critical for employers to stay compliant.
The two 2027 ACA penalty amounts are:
With a CHOICE Arrangement, previously known as ICHRA, employers contribute to the cost of individual employee health plans instead of purchasing a group health plan for their entire workforce.
For a CHOICE Arrangement to qualify as affordable employee coverage, the cost of an individual medical plan can't be more than 10.22% of an employee’s household income. The calculation uses the lowest-cost silver health insurance plan available on health insurance marketplaces in the employee’s area. 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 monthly allowance an employer offers, can't exceed 10.22% of the employee's household income for the month. If employers meet this requirement, the employee’s CHOICE Arrangement is affordable. To satisfy the employer mandate, employers must offer the benefit to at least 95% of full-time employees and their dependents.
If you’re considering offering a CHOICE Arrangement to your employees, the Remodel Health team can help you design a compliant and affordable contribution strategy for your workforce.
Employers should review their 2027 plan contributions to ensure employee-paid premiums don't exceed the 10.22% affordability threshold. Because employers typically don’t know each employee’s household income, they can use safe harbors to ensure compliance.
There are three affordability safe harbors:
In addition to the employer mandate fines, ALEs must comply with ACA reporting requirements. For instance, if they don’t file Form 1094-C or Form 1095-C, or file an inaccurate form, they can face tax return penalties.
Navigating the complexities of ACA compliance is critical to avoid penalties and ensure employers provide valuable healthcare benefits to their workforce. With the 2027 ACA affordability threshold increasing to 10.22%, employers should review their contribution strategies, confirm the applicable plan-year rules, and document their affordability calculations.
If you or your clients want to offer a CHOICE Arrangement, let the experts at Remodel Health help you offer an affordable employee contribution. With our ClearChoice™ solution, we’ll handle the heavy lifting so you can offer a compliant health benefit.
This blog post was originally published on September 4, 2025. It was last updated on October 16, 2026.