CWA HEALTH CARE REFORM UPDATE: Employer Opt-Out Incentives

How do opt-out provisions and cash incentives for opt-out affect ACA penalties and subsidies? Must employees provide proof of coverage elsewhere in order to opt out?

On July 2, 2013, the Obama Administration announced that it would delay implementing the employer mandate due the complex administration necessary to collect data from employers. New, simplified rules for employers will be released in the coming months followed by a year of testing and fine tuning before employers will be expected to comply. This means that current rules will be subject to change. The following is an explanation of the rules as they stand now.

Employers with at least 50 full-time employees must offer adequate, affordable coverage to their full-time workers and dependents, or they will be assessed a penalty. Employers with 200 or more employees must automatically enroll their employees in coverage. However, employees always retain the ability to opt-out of workplace coverage.

The ACA also stipulates that individuals must obtain health insurance coverage, or they will be assessed a penalty. The penalty for 2014 is the greater of $95 per household member without coverage, or 1% of household income, whichever is greater. The penalty increases in subsequent years.

In the past, many employers have offered cash or other incentives to employees who opt-out of the company health care plan. To date, no ACA rules prohibit such incentives. The law does stipulate, however, that employers must make the offer, and that individuals must be covered. In light of this, employers may require that employees provide proof of coverage elsewhere in order to opt out of the workplace plan and receive the incentive. Indeed, in the past, even before the ACA, many employers have had such rules in place.

For more on the employer penalty and individual mandate provisions, please see CWA’s ACA Subsidies and Penalties Fact Sheet.