The word “affordability” is getting a lot of play in the news and elsewhere these days. But if you’re an employer that sponsors a health insurance plan, you may already be familiar with the concept in a more specific sense.

Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer full-time employees health coverage that meets the law’s “affordability” standards. With updated inflation-adjusted thresholds taking effect in 2026, now’s a good time to revisit the rules and determine what the upcoming year’s numbers may mean for your organization.

Employer shared responsibility

For ACA purposes, an employer’s size is determined annually based on its average number of employees in the previous year. Generally, if your organization had an average of 50 or more full-time or full-time equivalent employees during the previous calendar year, you’ll be classified as an ALE for the current year. A full-time employee is one who averages at least 30 hours of service per week.

Under the ACA’s employer shared responsibility provision, ALEs must offer minimum essential coverage that’s affordable and provides minimum value to full-time employees (or equivalents) and their dependents. Affordability is measured using an annually indexed percentage of an employee’s household income. An ALE may be penalized if at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”) and it fails the affordability or minimum value tests.

Premium tax credit

It’s worth noting that the enhanced premium tax credit rules — originally expanded under the American Rescue Plan Act (ARPA) and later extended by the Inflation Reduction Act (IRA) — are set to expire after 2025. Unless Congress acts, the Marketplace subsidies available to employees and their families will shrink substantially in 2026. Although this doesn’t change an employer’s ACA responsibilities, it may affect the appeal of Marketplace coverage compared with your organization’s health insurance plan.

Under the ACA’s original framework, eligibility for a premium tax credit is limited to taxpayers with household incomes between 100% and 400% of the federal poverty line who buy coverage through a Marketplace. The ARPA temporarily removed the upper-income limit and increased the credit by lowering the percentage of household income individuals are expected to contribute. However, if ARPA and IRA enhancements expire as scheduled, the ACA’s original premium tax credit caps and formulas will return.

Next year’s numbers

For plan years beginning in 2026, the required contribution percentage used to determine whether employer-sponsored health coverage is affordable will increase from the 9.5% statutory baseline to 9.96% (up from 9.02% for 2025 plan years). This percentage determines the maximum amount an eligible employee can be required to pay toward the employee-only premium for the employer’s lowest-cost plan providing minimum value.

The ACA’s employer shared responsibility penalty amounts for ALEs have also been indexed for inflation. The penalty for offering coverage deemed unaffordable or that fails to provide minimum value will increase to $5,010 per applicable employee for 2026 plan years (up from $4,350 for 2025). Meanwhile, the separate “no offer” penalty — triggered when an ALE fails to offer coverage to at least 95% of full-time employees — will rise to $3,340 per applicable employee for 2026 plan years (up from $2,900 for 2025).

Compliant and competitive

Rising affordability thresholds, shifting Marketplace subsidies and increased penalty amounts could all potentially affect your organization’s benefits strategy and future decision-making. 

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