Employers who give full-time employees a monetary incentive to opt-out of employer-provided health coverage must make sure to collect evidence of insurance.
Some employers offer a financial payment to employees who do not elect to participate in the employer’s medical plan. These “opt-out” payments must be considered under the affordability provisions of the Affordable Care Act.
Applicable Large Employers (ALEs) are required under the ACA to offer coverage that is affordable and meets minimum value. Affordability is 9.5% of an employee’s household income, as indexed for inflation (9.12% for 2023). 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 (not individual market coverage) during the plan year.
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.
When open enrollment concludes for calendar-year plans, employers should review their HR records to make sure they have proof of other coverage for all who elected to waive employer-provided health coverage.
