Key takeaways
Under the Affordable Care Act, individuals can enroll in a health insurance plan in the individual market regardless of whether or not they have access to an employer-sponsored health insurance (ESI) plan. But subsidy eligibility is impacted by access to an employer-sponsored plan.
If you lost your employer-sponsored health insurance, you’ve got options that include subsidized individual-market coverage.
If a person has access to an employer-sponsored plan – either as an employee or as a dependent – eligibility for subsidies in the Marketplace/exchange depends on the cost of the employer-sponsored plan, and also on the level of coverage it provides.
Subsidies in the exchange/Marketplace are not available to people with access to an employer-sponsored plan if the employer-sponsored plan is considered affordable and provides minimum value. (Those concepts are described in more detail below.)
But if the employer-sponsored coverage available to a person changes such that it is no longer affordable or stops providing minimum value, and the person is eligible for Marketplace subsidies based on their income, they will qualify for a special enrollment period that will let them enroll in a Marketplace plan.
First, let’s take a look at what it means for an employer-sponsored plan to be affordable and provide minimum value:
Is the plan affordable?
An employer-sponsored plan is considered affordable in 2024 if the employee’s share of the premiums is no more than 8.39% of household income (modified adjusted gross income, as defined in the ACA).1 This limit changes each year; it was 9.61% in 20222 and it will be 9.02% in 2025.3 The 2024 affordability limit is the lowest it has ever been,4 and the first time it has been below 9% of household income. In other words, employer-sponsored coverage now needs to cost a smaller percentage of employees’ income in order to be considered affordable. But for 2025, the affordability threshold will once again be above 9% of household income.
The affordability calculation follows the plan year rather than the calendar year5. So if an employer’s health plan doesn’t follow the calendar year, the plan could continue to use the 2024 affordability limit (8.39% of household income) until the date the plan renews in 2025. Once the new plan year begins in 2025, the affordability of the coverage would depend on how the premiums compare with 9.02% of an employee’s household income.
If the employee’s share of the premiums exceeds 8.39% of household income in 2024 (or 9.02% of household income in 205), the employer-sponsored plan is considered unaffordable. The employee and any dependents are potentially eligible for subsidies in the exchange.
Actual eligibility for subsidies in the exchange will depend on household income relative to the cost of the benchmark (second-lowest-cost Silver) plan. This calculation isn’t the same as the affordability test for employer-sponsored insurance. For more clarification, you can use our employer coverage affordability calculator and our Marketplace/exchange subsidy calculator.
Large employers that do not offer affordable, minimum-value health coverage to their full-time workers will potentially face a financial penalty under the ACA’s employer mandate. Employers can use one of three safe harbor methods to ensure that the coverage they offer is considered affordable, and thus avoid a penalty.4 These safe harbors allow large employers to ensure that the coverage they are offering is considered affordable, without needing to know their employees’ household income amounts. (Employers generally know only how much they pay an employee, but not what the employee’s total household income is.)
Employers can offer affordable group health insurance, or they can choose to offer an Individual Coverage Health Reimbursement Arrangement (ICHRA) that covers enough of the premium for the lowest-cost Silver plan in the exchange/Marketplace that the employee’s cost for that plan is no more than 8.39% of the employee’s household income in 2024 (or 9.02% of household income in 2025). Note that the ICHRA affordability determination is calculated based on the lowest-cost Silver plan,5 as opposed to the benchmark plan.
Small businesses also have the option to offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). To clarify, small businesses are not required to offer health coverage, but if they do offer coverage and it’s considered affordable and provides minimum value, the employee is not eligible for subsidies in the marketplace.
How does the family glitch fix affect the affordability determination?
From 2014 through 2022, the affordability test was applied only to the employee’s portion of the premiums; the cost to add dependents to the employer-sponsored plan was not considered by the health insurance Marketplace when they determined whether an applicant’s offer of employer-sponsored health insurance was affordable. Regardless of how much it would cost to add dependents to the employer-sponsored plan, they were not eligible for subsidies in the Marketplace if the employer-sponsored plan was considered affordable for the employee alone. This was known as the “family glitch.”
But the Biden administration finalized a family glitch fix effective for 2023 and future years, making some families newly eligible for premium subsidies in the Marketplace.
Large employers are required to offer coverage to employees and their children, but there’s no requirement to offer coverage to employees’ spouses. That continues to be true. If the spouse is ineligible for the employer-sponsored plan, he or she is potentially eligible for subsidies in the exchange assuming that other eligibility requirements are met (this was already true, even without the family glitch fix, but not all spouses in that situation end up qualifying for premium tax credits).6
Through the end of 2022, if the spouse and/or dependents were eligible for employer-sponsored coverage and the employer’s plan was considered affordable for the employee alone, the entire family was ineligible for premium subsidies. But starting with 2023 coverage, the family members can potentially qualify for premium subsidies in the exchange if the cost for employer-sponsored family coverage would be more than 8.39% of household income in 2024 (or more than 9.02% of household income in 2025).
It should be noted that affordability determinations for ICHRAs and QSEHRAs were not changed by the IRS rule change to fix the family glitch. The rule change only applies to affordability determinations for employer-sponsored group health plans, but not to health reimbursement arrangements (see Section E of the final rule, which discusses QSEHRAs and ICHRAs).
How is affordability determined if the employer offers multiple plans?
If an employer offers multiple coverage options, the affordability test is based on the least expensive option (as long as it provides minimum value, as described below), regardless of which option the employee selects.7
The affordability test applies separately to each policy that the household might have, regardless of the total combined premiums. For example, if each spouse has a separate plan from an employer, the affordability test is based on how each plan’s premium compares with the household’s total income, rather than comparing how the total amount of combined premiums compares with the household income.
Does the plan provide 'minimum value'?
The employer-sponsored plan provides “minimum value” if it pays at least 60% of average costs for a standard population of people covered by large employer-sponsored plans, and includes “substantial coverage” for inpatient care and physician services.8 Minimum-value calculations are similar to actuarial value calculations for individual and small-group plans, but there are some differences.
Coverage that pays less than 60% of costs for the standard population does not provide minimum value, and people who are offered such plans can reject the coverage and potentially be eligible for Marketplace subsidies, depending on their household income.
HealthCare.gov has an employer coverage tool that enrollees can use – with their employer’s assistance – to determine whether the employer-sponsored coverage available to them is affordable and provides minimum value. The employer completes the form, and the enrollee uses the information on the form when enrolling in a plan through the exchange.
Marketplace subsidies are not available to people who have access to affordable, minimum-value insurance through an employer, regardless of whether the person is enrolled in the employer-sponsored plan. If you’re eligible for the employer-sponsored plan under the employer’s rules but missed the enrollment window or chose not to enroll, you’re still considered eligible for an employer-sponsored plan, and not eligible for premium subsidies if the guidelines above are met. (Note that large employers report this information to the IRS on Form 1095-C.)
If an employer offers multiple plan options, as long as one of them meets both the minimum value and affordability test, the employee and any eligible dependents cannot opt instead to purchase subsidized coverage in the exchange. This is true even if the employer also offers plans that don’t meet the affordability and/or minimum value tests.
(As noted above, there is a separate affordability test for family coverage. And to clarify, people who have an offer of affordable, minimum-value coverage from an employer do still have the option to enroll in a full-price Marketplace plan, they just wouldn’t be eligible for any subsidies.)
Note that the IRS regulations that fixed the family glitch also include a minimum value test for the coverage that’s offered to the family members. If the family is not offered a plan that provides minimum value (and/or that isn’t affordable), the family members can potentially qualify for Marketplace premium subsidies. This calculator can help you determine whether your employer’s coverage offer is affordable for you and your family.
A change in the insurance offered by your employer can trigger a SEP
If your employer sponsors insurance that is affordable and offers minimum value, you are not eligible for subsidies for Marketplace coverage. But if the employer-sponsored insurance is no longer affordable OR the coverage is changed such that it no longer provides minimum value, and if you are otherwise eligible for subsidies in the exchange based on your income, you’ll have access to a 60-day special enrollment period (SEP) in the exchange.
This SEP only applies to coverage purchased in the Marketplace/exchange, as it’s predicated on the applicant becoming eligible for premium subsidies, which aren’t available outside the exchange.
The SEP can be triggered by an increase in premiums for the employer-sponsored plan such that the portion the employee has to pay (for employee-only coverage, not counting dependents) goes above 8.39% of household income in 2024 (or above 9.02% of household income in 2025). This situation could also be triggered by a drop in income — including due to a reduction in hours — without an accompanying reduction in the premium that the employee has to pay for coverage through the employer-sponsored plan.
The SEP can also be triggered by the employer dropping coverage altogether, or making changes to the plan that bring it below the minimum-value threshold. The ACA’s employer mandate requires businesses with 50 or more full-time equivalent employees to offer coverage that meets minimum-value requirements, but employers can choose not to, and pay the applicable penalties instead. And employers with fewer than 50 employees are not required to offer coverage at all.
It’s important to note that you cannot drop employer-sponsored coverage mid-way through the plan year unless you have a qualifying life event.6 But the events that would cause an employer-sponsored plan to no longer be affordable or cease to provide minimum value will most likely either coincide with the end of the plan year (for example, a new plan is offered, or premiums are raised), or may be due to circumstances that result in lower pay, such as a reduction in hours, that might be considered a qualifying life event.9
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.
Footnotes
- “Revenue Procedure 2023-29” Internal Revenue Service. Accessed Feb. 16, 2024. ⤶
- “Revenue Procedure 2021-36” Internal Revenue Service. Accessed Feb. 16, 2024. ⤶
- “Revenue Procedure 2024-35”. Internal Revenue Service. Accessed Oct. 28, 2024. ⤶
- “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” #40, IRS.gov. Oct. 4, 2023 ⤶ ⤶
- “26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.” IRS.gov. Accessed Feb. 16, 2024 ⤶ ⤶
- “Affordability of Employer Coverage for Family Members of Employees” federalregister.com. Oct. 13, 2022 ⤶ ⤶
- “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” #39, IRS.gov. Oct. 4, 2023 ⤶
- “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” #42, IRS.gov. Oct. 4, 2023 ⤶
- “Notice 2014-55. Additional Permitted Election Changes for Health Coverage under § 125 Cafeteria Plans” Internal Revenue Service. Accessed Feb. 16, 2024. ⤶
