What is the ACA affordability threshold for 2027?

The ACA affordability threshold for the 2027 plan year is 10.22% of an employee’s household income, up from 9.96% in 2026. Employer-sponsored coverage must meet affordability, coverage, and minimum value requirements to satisfy the ACA’s employer mandate. If you’re a small business, you’re not subject to the employer mandate or any related tax penalties.

How do you calculate ICHRA affordability?

Subtract the monthly ICHRA contribution from the premium for the lowest-cost silver plan available to the employee. The remaining monthly premium must not exceed 10.22% of the employee’s monthly household income for the CHOICE Arrangement to be considered affordable in 2027.

What is the federal poverty level safe harbor for 2027?

For 2027, the federal poverty level (FPL) safe harbor limits an employee’s monthly contribution for self-only coverage to $135.93 for the 48 contiguous states and D.C. Employers can use this safe harbor instead of household income to determine affordability under the ACA’s employer mandate.

Can employers use a safe harbor to determine health insurance affordability?

Yes. Applicable large employers can use the Form W-2 wages, rate of pay, or federal poverty level safe harbor to determine whether their employees’ coverage meets the ACA affordability requirement for employer mandate purposes.

What happens if an employer’s health insurance plan is unaffordable?

An applicable large employer may face an employer shared responsibility payment if a full-time employee receives a premium tax credit for ACA coverage and enrolls in the plan. Employers can avoid this penalty by carefully calculating affordability for applicable employee benefits and using safe harbors.

What percentage of health insurance premiums do employers pay on average?

In 2026, employers paid an average of 82% of self-only health insurance premiums and 73% of family coverage premiums, according to KFF. Employees paid the remaining 18% and 27%, respectively.

Are employers required to pay a certain percentage of health insurance premiums?

No federal requirement mandates that employers pay a specific percentage of health insurance premiums. However, applicable large employers (ALEs) must meet Affordable Care Act (ACA) requirements, including offering affordable, minimum essential coverage (MEC) that meets minimum value standards to at least 95% of their full-time employees and their dependents to avoid potential employer shared responsibility penalties.

How much do employees pay for traditional employer-sponsored health insurance?

In 2026, employees paid an average of $1,672 annually for self-only group health coverage and $7,471 annually for family coverage. Actual costs depend on the employer's contribution strategy, plan type, and total premium.

Do small businesses pay more for employee health insurance?

Not necessarily. In 2026, small to mid-sized employers with 10 to 199 employees paid an average of 85% of self-only premiums, compared with 82% at larger employers. However, small employers contributed a lower average percentage toward family coverage: 65%, compared with 76% at larger employers.

How can employers reduce health insurance costs without increasing employee premiums?

Employers can consider a health reimbursement arrangement (HRA), such as a qualified small employer HRA (QSEHRA) or a CHOICE Arrangement, formerly known as an individual coverage HRA (ICHRA). These benefits let employers set a defined contribution budget while employees choose individual health insurance plans that fit their needs. Employers can reimburse eligible premiums and, depending on the HRA, other qualified medical expenses.

How do you set up an ICHRA?

To set up a CHOICE Arrangement, formerly known as ICHRA, review the applicable rules, design your benefit and contribution amounts, prepare plan documents, notify eligible employees, and launch the benefit. After launch, continue monitoring participation, expenses, and compliance requirements.

How long does it take to set up an ICHRA?

The timeline depends on your organization's size, benefit design, administrative procedures, and employee communication and education. Planning 90 days or more in advance helps you account for the employee notice requirement and prepare for launch.

Do employers need a third-party administrator for an ICHRA?

Employers aren't required to hire a third-party administrator, but they must still meet applicable plan administration, documentation, reimbursement, and compliance requirements. An ICHRA administrator, like PeopleKeep by Remodel Health, can help automate documents, store records, review reimbursement requests, and provide compliance guidance so you don’t have to handle it alone.

Can an ICHRA reimburse employees for health insurance premiums and medical expenses?

Yes. An ICHRA can reimburse eligible employees for qualifying individual health insurance premiums and other eligible medical expenses outlined in IRS Publication 502 and the CARES Act. However, employers can limit eligible healthcare costs in their plan design or choose to reimburse employees for health insurance premiums only.

What is the difference between an ICHRA and a CHOICE Arrangement?

On September 3, 2026, CMS and the SBA announced that the ICHRA is now officially called the CHOICE Arrangement. Because only the name changed, not the benefit itself, employers researching how to set up and implement an ICHRA may encounter both terms.

How does an individual coverage health reimbursement arrangement work?

An individual coverage health reimbursement arrangement (ICHRA), now known as the CHOICE Arrangement, is an employer-funded benefit that lets employers provide tax-free contributions toward employees’ individual health plan premiums. Employers set contribution amounts based on their healthcare budget, eligible employees select qualifying individual coverage, and use their employer-provided contributions to cover the cost.

Who is eligible for an ICHRA?

Employers of any size can offer an ICHRA to eligible employees. Employees must have qualifying individual health insurance coverage to participate. For greater flexibility, employers can vary contribution amounts by job-based employee classes, age, or family status.

Can employees choose their own health insurance policies with an ICHRA?

Yes. Employees choose individual health insurance plans that fit their healthcare needs, preferred provider networks, and budget. To use the benefit, they must enroll in qualifying coverage, such as ACA Marketplace health plans, certain student coverage, and eligible Medicare policies, like Medicare Parts A and B together or Part C.

How are ICHRA premiums paid?

Premium payment arrangements depend on the employer’s benefit administration process. Some organizations provide their employees with tax-free reimbursements, up to their contribution limit, after they pay for their monthly premiums. With Remodel Health, Autopay coordinates funding and automates premium payments directly to insurance carriers on time.

Does an ICHRA satisfy the ACA employer mandate?

An employer can satisfy the Affordable Care Act’s employer mandate for applicable large employers (ALEs) if their group coverage provides MEC, meets minimum value standards, and is affordable. With an ICHRA (now a CHOICE Arrangement), employers only need to offer an affordable contribution to at least 95% of their full-time employees and dependents. Employers should review their ICHRA benefits annually to ensure their contributions meet ACA regulatory requirements.

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