What Is Affordable Health Insurance?


Quick Answer

The Affordable Care Act defines a health care plan as affordable if the total costs of the plan do not exceed 9.5 percent of an employee's income each year, according to the Society for Human Resource Management. These plans may be defined using three methods established by the IRS.

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Full Answer

Affordability is determined based on the ability of a single-filing taxpayer to purchase self-coverage, as the Society for Human Resource Management explains. If an affordable plan is not available, tax credits may be provided to assist in purchasing a qualifying plan through the health insurance marketplace. Employers that do not offer affordable plans to qualifying employees may be penalized by the IRS with an Employer Shared Responsibility Payment.

Plans are defined as affordable using three methods established by the IRS, according to the Society for Human Resources Management. Employers may use annual taxable income, the pay check relevant to the first day of insurance coverage or the Federal Poverty Level as a base income to determine a policy's affordability. Any one of these methods may be used. The IRS classifies any policy that exceeds 9.5 percent of the calculated income as unaffordable, and taxpayers who do not qualify for an affordable plan may be eligible for financial assistance through tax credits.

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