Employee Waived Health Coverage? Don't Forget About ACA Reporting

An employee declines your company’s health plan because they have coverage through a spouse. Another employee prefers coverage available through the Health Insurance Marketplace. From an enrollment perspective, the matter may seem finished. From an Affordable Care Act (ACA) reporting perspective, it isn’t.

For Applicable Large Employers (ALEs), ACA compliance generally focuses on whether appropriate coverage was offered to full-time employees, not simply whether employees accepted that coverage. An employee who waives the employer’s health plan may therefore still need to be monitored and reported for ACA purposes.

A Waiver Does Not Erase the Offer

Under the ACA employer shared responsibility provisions, ALEs generally must offer qualifying health coverage to their full-time employees or potentially face penalties.

An employee is not required to accept the employer’s offer. Employees may decline coverage for many reasons, including having coverage through a spouse or another source.

If the employee declines, the important question for the employer is still: What coverage did we offer?

For ACA purposes, the employer may need to establish that an appropriate offer was made even though the employee chose not to enroll.

The Employee May Still Need a Form 1095-C

A common misconception is that employees who waive coverage can be excluded from ACA reporting.

Generally, an ALE must prepare Form 1095-C for each employee who was a full-time employee for one or more months during the calendar year, regardless of whether that employee enrolled in the employer’s health plan.

This is why Form 1095-C reporting distinguishes between an offer of coverage and actual enrollment. Line 14 generally tells the IRS what type of coverage the employer offered. It does not simply indicate whether the employee enrolled.

An employee who waived coverage could therefore have an offer-of-coverage code reported for a month even though the employee never participated in the plan.

Keep Records of What Was Offered

A waiver can document an employee’s decision, but employers should also maintain information supporting the underlying offer of coverage.

Depending on the circumstances, employers should be able to identify when the employee became eligible, when coverage was offered, the coverage available to the employee, the employee’s required contribution for the lowest-cost self-only coverage, and whether coverage was offered to a spouse and dependents.

Maintaining this information becomes particularly important if an employer later needs to explain its ACA reporting or respond to an IRS inquiry.

A signed waiver saying that an employee “declined coverage” may establish what the employee chose. It does not necessarily establish all of the details about what the employer offered.

Affordability Still Matters

An employee’s decision to waive coverage also does not eliminate the affordability analysis.

If an employer intends to rely on an ACA affordability safe harbor, it should determine whether the offer satisfied that safe harbor regardless of whether the employee accepted the coverage.

For example, an employer using the Federal Poverty Line safe harbor would still need to make sure the employee contribution for the applicable self-only coverage did not exceed the permitted affordability threshold. The fact that the employee ultimately waived coverage does not change the cost of the offer that was made.

Don’t Let “Waived” Employees Disappear From ACA Monitoring

This is where HR processes and ACA compliance can sometimes diverge.

Once an employee declines benefits, an enrollment system may show the employee as “waived,” and HR may have little reason to revisit that employee’s health coverage during the year. But the employee may still need to remain part of the employer’s ACA monitoring and reporting process.

The employer may need records of the employee’s full-time status, offer of coverage, affordability information, and other data needed to properly prepare Form 1095-C.

The same applies when circumstances change during the year. An employee might waive coverage during open enrollment and later enroll following a permitted midyear election event. ACA reporting must accurately reflect what occurred during the applicable months.

Remember: Enrollment and ACA Reporting Answer Different Questions

For benefits enrollment, the question is often: Did the employee elect coverage?

For ACA compliance, another important question is: What coverage did the employer offer?

Those are not the same question.

Employers should make sure their ACA processes continue to capture full-time employees who waive health coverage. Maintaining complete records of both the offer and the employee’s election can make year-end reporting easier and provide valuable documentation if the employer’s ACA compliance is later questioned.