Fiscal year plans may be approaching their annual enrollment period. Plans that want to offer an incentive for employees to opt-out of health coverage should consider how that payment will impact affordability for Affordable Care Act purposes.
Some employers offer a financial payment to employees who do not elect to participate in the employer’s medical plan. These “opt-out” payments may raise concerns under the Affordable Care Act. Employers should pay particularly close attention to structuring their opt-out payment arrangements.
Applicable Large Employers (ALEs) must offer coverage that is affordable and meets minimum value. Affordability is 9.5% of an employee’s household income, as indexed for inflation (9.61% for 2022).
If an employer does not want an opt-out payment to be factored into the cost of coverage, it must make sure the opt-out payment is offered only to employees who
If employers can document the above factors and get proof of other coverage, the opt-out payment is ignored when determining the cost of coverage. If the employer does not get proof of other coverage, the employer must add the value of the opt-out payment into the cost of the health coverage being offered. This might impact affordability of coverage if the opt-out payment is not considered when pricing the lowest-cost single coverage plan.
Employers may wish to review their plan cost structure in advance of open enrollment.