Employers that offer opt-out payments to employees who decline health coverage must review those payments for Affordable Care Act compliance.
Beginning January 1, 2017, unless an opt-out payment qualifies as an “eligible opt-out arrangement,” the amount of the opt-out will be included in the cost of coverage for affordability purposes. 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).
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
- Decline employer-sponsored coverage and
- Provide reasonable evidence that they and their dependents have or will have minimum essential coverage other than individual market coverage during the period covered by the opt-out payment (the plan year).
Employers who are now going through open enrollment and are offering an opt-out payment for the upcoming plan year should apply a process by which employees attest that they have other coverage for the upcoming plan year.