How to Survive the Returning ACA Subsidy Cliff

Two things happened to health coverage in 2026 that most business owners have not connected yet. Individual market subsidies got smaller for a lot of people, and the IRS made it easier for employers to shift more premium cost onto employees without breaking ACA compliance. Put those two together, and you have a real chance that employees you have not thought about in years suddenly want back on your health plan.

What the Subsidy Cliff Actually Is

During the pandemic era, enhanced ACA marketplace subsidies removed the old income cap, so even higher earners could get some help with premiums. Those enhancements expired at the end of 2025, which brought back the original “subsidy cliff.” Under the standard rule, subsidy eligibility ends abruptly at 400 percent of the federal poverty level. Go one dollar over that line, and a household loses the subsidy entirely rather than it phasing out gradually.

For 2027, the income cutoff for a single person is projected at $63,840, up only slightly from $62,600 in 2026, meaning the squeeze is not going away.

In 2025, about 92 percent of Marketplace enrollees qualified for a subsidy. In 2026, that dropped to roughly 87 percent.

Why This Lands on Your Desk, Not Just Employees’ Mailboxes

Some employees who previously waived your health plan to buy subsidized Marketplace coverage may now find that coverage costs meaningfully more, or lost its subsidy altogether. When that happens, the natural next move is coming back to ask about your employer plan during open enrollment, sometimes for the first time in years. If your enrollment and budget projections were built assuming a certain number of waivers, an unexpected wave of employees electing coverage can catch your plan’s headcount and cost projections off guard.

If you have not reviewed how prepared your plan is for that scenario, our HR consulting team can walk through your current enrollment assumptions with you.

The Other Half of the Squeeze: Rising Affordability Thresholds

At the same time individual subsidies are shrinking, the IRS raised the ACA employer mandate affordability threshold to 9.96 percent of household income for 2026, up from 9.02 percent in 2025 and the highest level on record. In practical terms, this gives employers more room to ask employees to pay a larger share of the premium while still satisfying the ACA’s affordability safe harbor. Using the federal poverty line safe harbor specifically, a self-only plan can cost an employee up to $129.89 a month in 2026 and still be considered affordable under the law.

That flexibility is legally sound, but it lands at an odd moment. Employers now have more room to shift costs onto employees at the exact time employees have less of a safety net in the individual market if they decline coverage. For applicable large employers specifically (generally 50 or more full-time equivalent employees), getting this calculation wrong risks an employer shared responsibility penalty, which for 2026 runs $3,340 per employee under the no offer penalty or $5,010 per employee under the affordability penalty.

What to Do About It Before Open Enrollment

• Re-run your affordability safe harbor calculation. The 2026 threshold changed. A contribution structure that was compliant last year should be checked against the new 9.96 percent figure and the updated FPL dollar amount before you finalize this year’s plan.
• Model a higher enrollment scenario. Ask your broker or benefits administrator to project your budget assuming a modest increase in employees electing coverage, rather than assuming last year’s participation rate holds.
• Get ahead of employee questions. Employees who lost or shrank their Marketplace subsidy will have real questions about switching to your plan. A short, plain language explainer sent before open enrollment opens reduces confusion and last minute scrambling.
• Confirm your applicable large employer status. If your headcount has grown near the 50 full-time equivalent threshold, this is the year to double check whether the employer mandate now applies to you.

Frequently Asked Questions

Does the subsidy cliff affect small employers who are not subject to the ACA mandate?

Yes, indirectly. Even employers under 50 full-time equivalent employees are not subject to the mandate itself, but employees at any size business can still be affected by the individual market subsidy cliff and may still come asking about employer coverage as a result.

What happens if our contribution structure is not affordable under the new threshold?

An applicable large employer risks the ACA employer shared responsibility payment if even one full-time employee receives a premium tax credit on the Marketplace because employer coverage was deemed unaffordable. Reviewing your safe harbor calculation annually is the best way to avoid this.

Should we expect more employees to elect coverage this year?

It is reasonable to plan for the possibility, particularly among employees near or above the 400 percent federal poverty line who previously used Marketplace coverage. Modeling a modest enrollment increase into your budget is safer than assuming flat participation.

How often does the ACA affordability percentage change?

Annually. The IRS adjusts it based on premium growth trends, and the swings can be significant, as seen with the jump from 9.02 percent in 2025 to 9.96 percent in 2026.

How HRDelivered Helps

HRDelivered’s benefits and compliance teams recalculate your ACA affordability safe harbor every year against the current IRS threshold, so your contribution structure stays compliant without you having to track the percentage change yourself. We also help you build enrollment projections that account for shifts in the individual insurance market, and prepare clear, plain language communication for employees who have questions about moving from Marketplace coverage back to an employer plan.

If you have not reviewed your affordability calculation against the 2026 threshold yet, that is the first place to start.

Request Your Free ACA Compliance Review

Not sure if the employer mandate applies to you? Talk to our compliance team to confirm your applicable large employer status.