Law and Policy
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2025 federal poverty levels can impact ESR affordability
January 21, 2025
The Department of Health and Human Services (HHS) updated guidelines, effective Jan. 15, 2025, set the 2025 federal poverty level (FPL) at $15,650 (up from $15,060 in 2024) for a person working in the mainland US, but $19,550 (up from $18,810 in 2024) for a person working in Alaska, and $17,990 (up from $17,310 in 2024) for a person working in Hawaii. Under the Affordable Care Act (ACA), the FPL can affect employer shared-responsibility (ESR) play-or-pay assessments in two ways:
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Premium tax credits.Individuals with household incomes between 100% and 400% of the FPL are potentially eligible to receive premium tax credits for health coverage purchased through a public exchange. ACA full-time employees' receipt of subsidized exchange coverage can trigger play-or-pay assessments. (Note that premium tax credit eligibility expanded to individuals earning more than 400% of the FPL for 2023 through 2025 under the Inflation Reduction Act of 2022.)
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Affordability testing.Employers can use the FPL under one play-or-pay affordability safe harbor to test whether their lowest-cost, self-only minimum essential coverage (MEC) with minimum value is affordable to employees. When conducting this test, an employer may use the FPL in effect within six months before the start of the plan year. For ESR affordability testing, employers use the FPL for the state in which the employee is employed. As announced in September 2024, the ACA benchmark percentage for determining the affordability of employer-sponsored health coverage increased significantly — to 9.02% of an employee's household income for the 2025 plan year — up from the 2024 plan-year level of 8.39%.
2025 play-or-pay FPL affordability safe harbors. The updated FPL figures will apply for 2026 calendar-year plans and noncalendar-year plans beginning in 2025. Employers with calendar-year plans can’t rely on those higher FPLs for 2025 affordability testing. Instead, 2025 calendar-year plan sponsors must use the 2024 FPL amounts. As a result, the 2025 FPL affordability safe-harbor monthly employee contribution limits for the lowest-cost, self-only MEC with minimum value are as follows:
- Noncalendar-year plans beginning in 2025 (see discussion below for a special rule):
- Mainland US: $117.64, calculated as (9.02% x $15,650 FPL for 2025) ÷ 12, rounded to the nearest penny
- Alaska: $146.95 calculated as (9.02% x $19,550 FPL for 2025) ÷ 12, rounded to the nearest penny
- Hawaii: $135.22 calculated as (9.02% x $17,990 FPL for 2025) ÷ 12, rounded to the nearest penny
- 2025 calendar-year plans:
- Mainland US: $113.20, calculated as (9.02% x $15,060 FPL for 2024) ÷ 12, rounded to the nearest penny
- Alaska: $141.39, calculated as (9.02% x $18,810 FPL for 2024) ÷ 12, rounded to the nearest penny
- Hawaii: $130.11, calculated as (9.02% x $17,310 FPL for 2024) ÷ 12, rounded to the nearest penny
Special rule for noncalendar-year plans. Noncalendar-year plans may use the FPL in effect within six months before the first day of the plan year. For the 2025 plan year, noncalendar-year plans benefit from using the higher 2025 FPL amounts.
The adjusted affordability percentage applies on a plan-year — not a calendar-year — basis. This means noncalendar-year plans beginning in 2024 will continue to use 8.39% to determine affordability in 2025 until their new plan year starts.
As a reminder, for noncalendar-year plans beginning in 2024, the FPL affordability safe-harbor monthly employee contribution limits for the lowest-cost, self-only MEC with minimum value are as follows:
- Mainland US: $105.29, calculated as (8.39% x $15,060 FPL in 2024) ÷ 12, rounded to the nearest penny
- Alaska: $131.51, calculated as (8.39% x $18,810 FPL in 2024) ÷ 12, rounded to the nearest penny
- Hawaii: $121.03, calculated as (8.39% x $17,310 FPL in 2024) ÷ 12, rounded to the nearest penny
Related resources
Non-Mercer resources
- HHS poverty guidelines for 2025 (Federal Register, Jan. 17, 2025)
- Rev. Proc. 2024-35 (IRS, Sept. 6, 2024)
- HHS poverty guidelines for 2024 (Federal Register, Jan. 17, 2024)
- Public L. No. 117-169, the Inflation Reduction Act of 2022 (Congress, Aug. 16, 2022)
- Employer shared-responsibility provisions (IRS, regularly updated)
- Q&As on employer shared-responsibility provisions under the Affordable Care Act — Affordability (IRS, regularly updated)
Mercer Law & Policy resources
- 2025 quick benefit facts (Jan. 16, 2025)
- 2025 affordability percentage for employer health coverage increases (Sept. 9, 2024)
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