ACA Subsidy vs Employer Insurance: The Affordability Test

You cannot receive ACA subsidies if your employer offers affordable, minimum-value health coverage. For 2027, employer coverage is considered affordable if your required contribution for self-only coverage does not exceed 10.22% of your household income. This figure comes from Rev. Proc. 2026-26, section 3.02, and applies to plan years beginning in 2027.

The basic rule

The premium tax credit under IRC 36B is only available for months in which you are enrolled in a qualified health plan through a marketplace and are not eligible for affordable, minimum-value coverage through an employer or government program. Two conditions must both be met before employer coverage blocks marketplace subsidies:

1. The coverage must be affordable (your required contribution does not exceed the applicable percentage of your household income).
2. The coverage must provide minimum value (the plan pays at least 60% of covered costs).

If either condition is not met, you may be eligible for a marketplace premium tax credit even if you have access to employer-sponsored coverage.

The affordability test: 10.22% for 2027

For plan years beginning in 2027, the required contribution percentage is 10.22%, as established by Rev. Proc. 2026-26 section 3.02. This means employer coverage is affordable if the amount you must pay for self-only coverage (not family coverage) does not exceed 10.22% of your household income.

For a concrete example: a single filer with household income of $60,000 has an affordability threshold of $6,132 per year (10.22% of $60,000).

• If the employer requires a self-only premium of $350/month ($4,200/year), the coverage is affordable: $4,200 is at or below the $6,132threshold.
• If the employer requires $550/month ($6,600/year), the coverage is not affordable: $6,600 exceeds the $6,132 threshold, and the filer may be eligible for a marketplace subsidy.

The same 10.22% rate also sets the maximum required contribution for marketplace filers at the top of the subsidy scale (300-400% FPL). These are the same percentage from the same Revenue Procedure. See How ACA Premium Percentages Changed for 2027 for the full applicable percentage table.

What minimum value means

A health plan provides minimum value if it is designed to pay at least 60% of the total allowed costs of benefits provided under the plan. This is the actuarial value threshold -- the same threshold used to define Bronze-level plans on the marketplace.

Most employer-sponsored plans easily clear the 60% actuarial value threshold. However, plans with very high deductibles, limited benefit categories, or those that exclude major services (such as hospital coverage) may fall below the minimum value standard. If your employer's plan does not provide minimum value, you may be eligible for marketplace subsidies regardless of the premium cost.

Employers subject to the ACA employer mandate (generally those with 50 or more full-time equivalent employees) are required to offer minimum-value coverage to avoid penalties under IRC 4980H(b). Smaller employers are not subject to this requirement.

The family glitch fix (2023 and later)

Before 2023, a long-standing IRS interpretation applied the affordability test only to the cost of self-only coverage, even for employees who needed family coverage. This created the "family glitch": an employee's family could be blocked from marketplace subsidies even if the cost of adding family members to employer coverage was far beyond 10.22%of household income.

IRS final regulations issued in 2022 and effective January 1, 2023 fixed this. Under the current rule, family members can now qualify for a marketplace premium tax credit if the cost of employer-sponsored family coverage (for the family, not just the employee) exceeds the affordability threshold as a percentage of household income.

Note that the employee still uses the self-only cost to determine their own eligibility. It is the family members' eligibility that is evaluated against the cost of adding them to family coverage. Both the self-only and family affordability determinations use the same 10.22% threshold for 2027.

When you can still get marketplace subsidies

Even if you have access to employer-sponsored coverage, you may be eligible for a marketplace premium tax credit in the following situations:

• Employer plan is unaffordable: If your required self-only contribution exceeds 10.22% of your household income, the plan fails the affordability test and you may qualify for a marketplace subsidy.
• Employer plan does not meet minimum value: If the plan pays less than 60% of covered costs, you may qualify for marketplace subsidies even if the premium is affordable.
• Family glitch situations: If the cost of family coverage through your employer is unaffordable for your family members (based on the cost to add them), those family members may be eligible for marketplace subsidies.
• No offer of coverage: If your employer does not offer you health coverage at all, you are eligible for marketplace subsidies based on income (provided you are otherwise eligible).
• Income within the subsidy range: You must also be within the subsidy income range (100% to 400% FPL) to receive any credit. For a single person, 400% of the 2026 FPL (used for 2027 coverage) is $63,840.

How to compare employer vs. marketplace coverage

To determine which option costs less, compare your net annual premium under each scenario:

• Employer coverage net cost: Your annual employee premium contribution (after the employer's portion is subtracted). Also factor in deductibles, out-of-pocket maximums, and covered benefits.
• Marketplace coverage net cost: The annual premium of your chosen plan, minus your premium tax credit. Your credit is the benchmark Silver plan (second-lowest-cost Silver plan) in your area minus your required contribution (10.22% of household income at the top of the scale, less at lower FPL tiers). You can apply that credit to any metal-tier plan.

The marketplace at healthcare.gov can estimate your subsidy based on your income, household size, and zip code. Compare that net marketplace cost to your employer's premium contribution before making a decision.

Keep in mind that if you drop employer coverage to enroll in a marketplace plan, you generally cannot re-enroll in employer coverage until the next open enrollment period unless you have a qualifying life event. This decision carries consequences that extend beyond the current plan year.

This article provides educational information only and is not tax or benefits advice. Your specific eligibility depends on your household income, family size, employer plan details, and location. Consult a tax professional or licensed benefits advisor for guidance specific to your situation.