Opt Out Payments in Cost of Coverage

Posted by BAS - 15 December, 2016


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.

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