Find out your employer responsibility under the ACA in the event an employee waives affordable, minimum value health coverage.
Bud Bowlin has been advising business owners about health insurance and benefits for more than 35 years. For his 70th birthday, we gave him his own advice column. Got a burning benefits question for Bud? Send it to [email protected].
My company has 115 employees, and we just had our first employee who declined health coverage—but not for the reason of spousal coverage. On the waiver, he indicated that he wants to continue his care with a provider who’s not part of our ACA-compliant plan’s network. Now I’m nervous about fines because my employee is getting coverage on the exchange. As long as he doesn’t seek a government subsidy for the marketplace coverage, am I clear for penalties?
ACA Law Fines or Nothing So Objectionable
The ACA doesn’t penalize an employer for an employee who declines adequate coverage—only an employer who fails to offer adequate coverage. Employees aren’t required to accept employer-sponsored health coverage, though most employees (happily) do. As long as you (the employer) are compliant in the coverage you offer, the onus of compliance falls on the employee who declines coverage, in two ways:
- An employee who declines employer coverage and doesn’t obtain individual coverage will be subject to a penalty.
- An employee who declines affordable, minimum value employer coverage and applies for subsidized coverage on the exchange will be subject to a penalty.
The penalty (for employer or employee) is triggered when the employee goes to the exchange and receives a tax credit.
Let’s revisit your responsibilities as a large employer. You must offer affordable, minimum value health coverage to your employees. This means your plan(s) must cover at least 60% of your employees’ healthcare expenses, and premiums must not exceed 9.5% of their W-2 compensation. If a company’s coverage doesn’t meet these specs, employees can opt out on the grounds that the coverage is too expensive and/or inadequate. In this scenario, when these employees apply for subsidized coverage, the company will face a penalty. Since you stated your plan is ACA-compliant, you don’t need to worry about this.
Employees can turn down coverage for any reason—including, like your employee, the desire for a different plan than what you offer. But, employees must then procure individual coverage. If they’ve declined affordable, minimum value employer coverage, they can certainly purchase health coverage through the exchange. They cannot, however, get government-subsidized coverage.
How does the government know? Excellent question.
Let’s consider your employee, who I’m going to call “Jim.” When Jim enrolls in coverage through the exchange, he’ll be asked if he has access to an affordable, minimum value, employer plan. If Jim answers no to to this, it’s possible he’ll get a subsidy. If this happens, you won’t be penalized—so long as you make sure to track your offers of ACA-compliant coverage and report them to the IRS on Form 1095-C. Jim, on the other hand, will get fined.
When the IRS processes your 1095-C, they’ll see that you offered Jim affordable, minimum value coverage, and he was not truthful about it in signing up for coverage on the exchange. At minimum, Jim will be required to pay back the subsidy at tax time. The IRS could also view this as fraud, and assess steeper penalties to Jim.
- If Jim declines your coverage for himself, Jim can’t cover his spouse or dependents under your plan.
- If Jim declines your coverage and goes to the exchange, you should not offer to reimburse him for his premiums through a bonus!
- If Jim declines your coverage and then later changes his mind, he must wait to enroll in your plan until the next open enrollment. The only exception to this is if Jim loses his coverage on the exchange. In this case, he must request to enroll in your plan within 30 days.
It’s not required, but you might want to have a quick head-to-head with Jim—just to make sure he’s fully aware of the implications of his choices. Now, if you find you’re getting this type of waiver from Jim, Jenny, Julie and Jack, I’d suggest you have that head-to-head with your broker. It might be time to revisit your network and make sure your employees are well-served by your plan’s providers.
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