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Human Resources

Employees Declining Coverage Under the Affordable Care Act

David Peasall, VP, Human Resources
by David Peasall, VP, Human Resources on February 4, 2014


Employees declining coverage under the ACAMany employers who do offer health insurance to their workers have asked us what happens when employees decline that offered coverage. It’s important to note that a penalty is only triggered under the Affordable Care Act’s Employer Mandate when an employee goes to the Health Care Exchange and receives a tax credit. The company must also be classified as a large employer (see our Company Size Calculator to see where your business falls under the ACA).

There are a couple of things to consider here. First – if you’re a large employer, you must offer affordable minimum value coverage to your employees or face a tax penalty. Employees can opt out of their employers' health insurance if it is too expensive or is inadequate. A plan is inadequate if it does not cover at least 60% of an employee's healthcare expenses. A plan is too expensive if premiums exceed 9.5% of the employee’s W-2 compensation. If you’re a large employer and your coverage is inadequate and/or expensive – and an employee declines your coverage and goes to the Exchange and receives a tax credit – you will face a penalty.

If your coverage meets the definitions of affordable and minimum value – employees may still turn it down for a number of reasons: they don’t want coverage at all – they’re covered under a spouse or family member’s plan – or they want to choose a different kind of plan through the marketplace or elsewhere. As long as your offered coverage is affordable and has minimum value – then the responsibility falls under your employee to be covered under the Individual Mandate regulation. Think of it this way: the ACA does not penalize an employer for employees who decline an offer of coverage. The ACA penalizes the employer who fails to offer coverage. So if an employee declines your affordable minimum value coverage, they’re the ones who must get covered or face their own penalty on their 2014 federal income taxes.

If you are defined as a small employer by the ACA, you won’t face a tax penalty whether you offer coverage or not. If you do offer any sort of health coverage to your employees, it’s extremely important to get every employee to either enroll or decline in writing.

Additionally, the ACA requires that employers offer coverage to a worker's children — not spouses. However, employers are allowed to charge the worker the full-price of dependent coverage, with no company subsidy.

Benefits_Plans_Contact_a_Specialist

More Affordable Care Act information for business owners:

The Affordable Care Act and Dependent Coverage

White House Rolls Out Changes to Employer Mandate

Affordable Care Act for Employees: What You Need to Know

David Peasall, VP, Human Resources
ABOUT THE AUTHOR
David Peasall, VP, Human Resources

David Peasall joined FrankCrum in 2010. Since that time, he has served as the Vice President of Human Resources. Serving in the Army, he began his 20+ year career in human resources and benefits administration and has held several management positions within the corporate and public human resources environments overseeing employee benefits sales and administration, recruitment, compensation, employee relations, organizational development, and compliance. He has the nationally recognized designation of Senior Professional in Human Resources (SPHR), PPACA certification from NAHU, and a Bachelor’s degree from Barry University with a dual major in Human Resources Management and Health Services Administration. He has written for the Society for Human Resources Management, HR Insight, Proyecto Magazine, and for online publications in the restaurant and health care industries. While not at work, this Florida native loves spending time with his family, preferably boating, fishing, and diving the beautiful waters of Florida.