Opt-Out Payments Permissible Under Health law but Must be Added to Cost of Coverage

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Under the Affordable Care Act, an employer may offer its employees a taxable payment if the employee elected to waive health care coverage. However, the value of the opt-out payment should be included when determining whether an offer of coverage is affordable since the employee is foregoing an economic benefit (the cash payment) when he elects coverage.
For example, if an employer requires that an employee pay $200 per month for self-only coverage, and offers the employee $100 per month if the employee waives coverage, the Internal Revenue Service (IRS) indicates that the employee’s cost of coverage for purposes of the affordability rules of Code Section 4980H is $300 per month (the sum of the $200 that the employee must pay for the coverage and the $100 the employee did not receive because he elected coverage). 

Employers that offered an opt-out arrangement on December 16, 2015, including certain employers that had provided written communications to employees about an opt-out arrangement prior to December 16, 2015, are not subject to this rule for 2015 or 2016. This means that these employers do not have to include the amount of the opt-out payment in their affordability analysis or in the cost of coverage reported on Form 1095-C until final regulations are issued, which is not expected to be prior to January 1, 2017. However, until further guidance is issued, an employee may treat the opt-out payment as increasing the employee’s required contribution for purposes of determining the employee’s eligibility to receive a premium subsidy for coverage purchased on the exchange.
The complete text of IRS Notice 2015-87 is available here.