The IRS announced the 2026 ACA affordability percentage will increase to 9.96%, up from 9.02% in 2025, the largest single-year jump in recent years. This significant change, along with updated employer penalty amounts and out-of-pocket maximums, directly impacts how Applicable Large Employers (ALEs) structure their health benefits for 2026.
Every year, the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) update the ACA benefit and payment parameters through the Notice of Benefit and Payment Parameters (NBPP). The 2026 parameters, released in July and October 2025, include several critical changes that applicable large employers (ALEs) with 50 or more FTEs must understand to maintain ACA compliance and avoid costly penalties.
If your company needs to comply with the ACA, you need to know what to expect in 2026. Learn more here about the 2026 Notice of Benefit and Payment Parameters and how it may affect you.
The 2026 affordability threshold of 9.96% represents a significant shift from recent trends:
This increase reflects updated calculations using the National Health Expenditure Accounts projections and provides employers with slightly more flexibility in setting employee contribution amounts while maintaining ACA compliance.
One component of the 2026 Notice of Benefit and Payment Parameters that directly affects employers is the premium adjustment percentage.
The premium adjustment percentage determines the out-of-pocket maximums for health plans. It also affects:
The Premium Adjustment Percentage for 2026 will be 1.60, representing a 60% increase in employer-sponsored insurance premiums since 2013. This 10.3% increase from 2025's rate of 1.45 is one of the steepest adjustments in recent years, reflecting rising healthcare costs across the industry.
The out-of-pocket maximum is the highest amount an employer with a sponsored group health plan can impose on enrollees. The new maximums for 2026 will be:
This is an increase of 15.2% from 2025 limits ($9,200 individual / $18,400 family). The significant jump reflects the rising cost of healthcare services and prescription drugs, particularly high-cost specialty medications and GLP-1 drugs.
The employer mandate penalty amounts have been confirmed for 2026 with substantial increases. The
These represent a 15.2% increase from 2025 penalty amounts.
The lower A Penalty applies to applicable employers who don't offer minimum essential coverage to at least 95% of full-time employees and their dependent children (up to age 26).
The higher B Penalty applies to employers who:
The penalty only applies if at least one full-time employee receives the premium tax credit for buying coverage through the Health Insurance Marketplace. Given the significant penalty increases for 2026, ensuring your health plans meet ACA affordability and reporting requirements is more critical than ever.
Related to the out-of-pocket maximum and employer penalty amounts is the health plan affordability threshold. The affordability threshold determines whether the health plan with the lowest premium you offer meets the criteria of affordability.
The IRS announced that the affordability threshold for 2026 will be 9.96% of an employee's household income. This is an increase from the 2025 limit of 9.02%.
While this represents a higher percentage than 2025, it actually provides employers with slightly more flexibility in setting employee contribution amounts. The increase reflects the methodology change in how the IRS calculates affordability based on premium growth rates relative to income growth rates.
Because employers typically don't have access to employees' household income details, the IRS provides three safe harbor methods:
Federal Poverty Line (FPL) Safe Harbor:
For 2026, using the 2025 FPL of $15,650 for mainland states, the maximum monthly employee contribution is $129.90 (9.96% × $15,650 ÷ 12 months). Note: This $129.90 amount applies to plan years that start in the first half of 2026. HHS has not yet issued the new federal poverty line figures, which will be used to calculate affordability for plan years starting in the second half of 2026.
Rate of Pay Safe Harbor:
Calculate 9.96% of the employee's monthly wages (hourly rate × 130 hours).
W-2 Safe Harbor:
Calculate 9.96% of the employee's W-2, box 1 wages for the calendar year.
A critical factor affecting the 2026 parameters is the scheduled expiration of enhanced premium tax credits on December 31, 2025. These enhanced credits, extended through the Inflation Reduction Act, have kept ACA Marketplace coverage affordable for millions.
Their potential expiration could significantly impact:
If the enhanced credits are not renewed, experts estimate that approximately 4 million people could lose their Marketplace coverage and become uninsured. For employees currently receiving these credits, monthly premium payments could more than double in 2026.
Employers should monitor Congressional action on extending these credits throughout early 2026, as changes could affect ACA compliance strategies and employee benefit decisions.
Issuers in the federally facilitated marketplace (FFM) and state-based marketplaces on the federal platform must continue offering standardized plan options in 2026. The standardized plans must be available at every product network type, every metal level, and throughout every service area.
The standardized options receive differential display on the Health Insurance Marketplace website. HHS believes that differential display will:
Issuers active in states that already require standardized plan options can continue under the state rules.
CMS has maintained its clarified nondiscrimination policy for 2026. The policy specifies that benefit limits and plan coverage requirements must be based on clinical evidence. This is meant to combat plan designs that are presumptively discriminatory.
Discrimination on the basis of sexual orientation or gender identity remains a particular concern for HHS. The agency continues to address discrimination in health coverage based on sex under section 1557 of the ACA, ensuring these policies remain consistent with evolving civil rights protections.
The 2026 Notice of Benefit and Payment Parameters from HHS and CMS contains several significant changes that will affect applicable employers.
These changes will impact:
For employers, the key takeaway is clear: the 2026 parameters require immediate attention to avoid significantly higher penalties. With penalty amounts increasing by more than 15% and affordability thresholds rising, now is the time to review your health plan offerings and ensure compliance.
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