Health insurance is considered unaffordable under federal rules when premiums exceed a set percentage of your household income. For 2025, that threshold is 9.02% of household income for employer-sponsored coverage. A separate threshold of 7.97% applies when determining whether you qualify for an exemption from the requirement to have coverage at all. These percentages are adjusted each year for inflation, so the exact number shifts slightly from year to year.
The Federal Affordability Threshold
The Affordable Care Act established a sliding percentage to define when health coverage crosses from affordable to unaffordable. For 2025, employer-sponsored insurance is considered unaffordable if your share of the premium costs more than 9.02% of your household income. In 2023, that number was 9.12%. The IRS adjusts it annually, and it has generally trended downward in recent years, meaning the standard for what counts as “affordable” has gotten slightly stricter.
Household income here means your modified adjusted gross income, which includes wages, investment income, and most other taxable income for everyone in your tax household. This is a gross income figure, not your take-home pay. That distinction matters because the calculation can make coverage appear more affordable on paper than it feels in practice.
When your employer coverage fails this affordability test, you become eligible for premium tax credits (subsidies) on the ACA Marketplace. These credits can dramatically reduce what you pay for a Marketplace plan. To qualify, your household income generally needs to fall between 100% and 400% of the federal poverty level, though temporary expansions in recent years have removed the upper cap for some tax years.
What the Calculation Includes (and Doesn’t)
The affordability test looks only at premiums, specifically the employee’s required contribution. It does not factor in deductibles, copays, coinsurance, or any other out-of-pocket costs. This is one of the most common sources of frustration: a plan can be deemed “affordable” under federal rules even if it carries a $5,000 or $8,000 deductible that makes actually using the insurance feel impossible.
HealthCare.gov itself advises consumers to look beyond premiums when comparing plans, noting that deductibles, copayments, and coinsurance can add more to your total yearly costs than the premium itself. But for the legal determination of affordability, none of that matters. Only the premium counts.
How It Works for Families
For years, the affordability test created a problem known as the “family glitch.” The rule originally judged affordability for an entire family based solely on the cost of the employee’s self-only coverage. So if your employer offered individual coverage at 7% of your household income (affordable by the standard), but adding your spouse and children pushed the premium to 25% of household income, the whole family was still considered to have an affordable offer. That locked family members out of Marketplace subsidies.
The IRS fixed this starting in 2023. Under the updated rule, affordability for family members is now based on the cost of family coverage, not the employee-only premium. If the family premium exceeds the affordability threshold (9.02% for 2025), those family members can qualify for subsidized Marketplace coverage on their own, even if the employee’s individual plan remains affordable. The employee in that scenario would stay ineligible for subsidies, but their spouse and children would not.
This change opened Marketplace eligibility for an estimated 5 million people who were previously caught in the gap.
The Coverage Exemption Threshold
A separate, lower threshold determines whether you can claim an exemption from having health coverage altogether. If the cheapest plan available to you, whether through an employer or the Marketplace, would cost more than 7.97% of your household income, you qualify for an affordability exemption. This means you won’t face any tax penalty for being uninsured (in states that still enforce one).
This threshold is lower than the 9.02% employer affordability standard, which creates a narrow gap. If your cheapest option costs between roughly 8% and 9% of your income, you’re in a zone where coverage is technically considered affordable enough to disqualify you from an exemption, but you still might qualify for Marketplace subsidies depending on the specifics of your employer’s offer.
State Rules Can Differ
Some states apply their own affordability standards that go beyond federal minimums. Massachusetts, which pioneered many of the coverage mandates that later became part of the ACA, operates its own exchange and provides subsidized coverage for residents with incomes up to 300% of the federal poverty level through a state affordability schedule that is more generous than the federal one. Residents between 300% and 400% of the poverty level also receive premium support.
If you live in a state with its own health insurance mandate or exchange, your state may define affordability differently or offer additional subsidies that kick in at lower income levels. Checking your state’s marketplace or insurance authority is worth the effort, since federal rules set the floor, not the ceiling.
What This Means in Dollar Terms
To put the percentages into perspective: a household earning $60,000 a year hits the 2025 federal affordability threshold at about $5,412 in annual premiums, or roughly $451 per month. If you’re paying more than that for your share of employer coverage, it’s considered unaffordable and you can shop for subsidized Marketplace plans instead.
For a household earning $40,000, the cutoff drops to about $3,608 per year, or $301 per month. At $80,000, it’s around $7,216 per year, or $601 per month. The percentage stays the same, but the dollar amount where coverage tips into “unaffordable” scales with income. Lower-income households hit the wall much faster, which is why subsidies are designed to be largest for people closer to the poverty level.
If you suspect your coverage might be unaffordable by these standards, you can run the numbers on HealthCare.gov during open enrollment. The application process will check your employer’s offer against the threshold and tell you whether you qualify for financial help.