Opt-Out Payments for ACA

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With calendar-year plan open enrollment season coming to a close, employers that offered money to employees who opted out of health coverage must take follow up actions 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 8.39% of an employee’s household income for 2024. If an employer does not want an opt-out payment to be factored into the cost of coverage for determining affordability, 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. This means employers must ask each employee who declined coverage for a copy that they have insurance elsewhere. 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 offering opt-out payments should review their HR records to make sure they have proof of other coverage for all who elected to waive employer-provided health coverage.