2027 ACA Affordability Percentage Rises to 10.22% for Applicable Large Employers

On July 21, 2026, the IRS released the affordability percentage under the Affordable Care Act (ACA) for 2027 in Revenue Procedure 2026-26. The level for plan years starting on or after January 1, 2027, will be 10.22%.

The IRS adjusts the affordability percentage annually based on premium and income growth trends. The 2027 threshold of 10.22% is the highest percentage since the ACA's inception, up from 9.96% in 2026. 

Affordability standard: To avoid potential penalties under the ACA's "pay-or-play" rules, for plan years beginning in 2027, applicable large employers (those with 50 or more full-time employees or the equivalent) are required to offer full-time employees at least one group medical plan option that is at least minimum essential coverage (including coverage for the employees' dependents) and is minimum value (paying at least 60% of the aggregate costs under the plan) that is also affordable (a full-time employee's required contribution for self-only coverage does not exceed 10.22%, in 2027, of the employee's household income). 

Because employers generally do not have access to an employee's actual household income, the IRS provides three affordability safe harbors: the Form W-2 safe harbor, the rate-of-pay safe harbor, and the federal poverty line (FPL) safe harbor. 

Since the affordability percentage will increase in 2027, it will provide employers with some additional financial leeway when pricing the coverage for their lowest-cost medical plans.

Special Rules for Calendar-Year Plans Using FPL As Their ACA Affordability Safe Harbor

Employers that rely on the FPL safe harbor for a calendar-year plan may rely on the 2026 Federal Poverty Level when establishing 2027 contribution limits. Under applicable IRS guidance, the FPL safe harbor permits use of the poverty guidelines within six months before the first day of the plan year. The Department of Health and Human Services typically does not release updated poverty guidelines until mid-to-late January, after the 2027 plan year will have already begun. Calendar-year plan sponsors using the FPL safe harbor should rely on the 2026 Federal Poverty Level to establish their 2027 safe harbor contribution ceiling.

Recommended Actions

• Employers should evaluate their 2027 contribution strategy against the 10.22% threshold, using the safe harbor (Form W-2, rate of pay, or FPL) most consistent with how the plan is administered.
  
  
• Employers using the FPL safe harbor for a January 1 plan year should finalize 2027 contribution rates using the 2026 Federal Poverty Level.
  
  
• Employers should evaluate whether the additional flexibility under the revised percentage warrants adjustments to employee contribution levels, consistent with budget and compliance objectives.
  
  
• Employers should coordinate with payroll and finance functions in advance of open enrollment to implement any contribution changes for the 2027 plan year.

Please contact your dedicated World Insurance account team with any questions. 

This Compliance Alert is provided by World Insurance for general informational purposes only. It is not intended as, and should not be relied upon as, legal or tax advice. Please consult your benefits counsel for guidance specific to your plan.