Posted in Offering health benefits | by: Lauren Fifield

Waiving Health Coverage: A Cheat Sheet for Companies and Teams

Inside every waiver of coverage, you may find waves of confusion. Waiving, or opting out of a health insurance, sounds like someone is snubbing the idea of benefits altogether. But in reality, the waiver only allows someone to say “no thanks” to coverage specifically offered by their employer — not all health insurance options. When an individual waives coverage, there are a handful of rules both companies and teams need to follow to keep things flowing smoothly. In this article, we’ll explain how to waive coverage for yourself or your employee, all while keeping everyone’s uncertainty at bay.

Back up. Why do people decline work-sponsored health insurance?

There are a few good reasons to reject coverage. Some people are already under a family member’s plan, are receiving insurance from another employer, or prefer an individual health plan because it offers better benefits. In rare cases, employees may feel that another plan is more affordable than the one their company is offering, so they decide to press ahead with that one instead.

How do I waive coverage?

For employees

1. Know the basics

Whether it’s with your employer or not, you can’t get around having health insurance. Under the Affordable Care Act’s individual shared responsibility provision, you can either sign up for a health plan, get an exemption, or wind up with a fine from the IRS. It’s also important to note that when you opt out of insurance at work, it means your family won’t be eligible for that plan either.

2. Understand your timeline

You can only decline your employer-sponsored insurance during an open enrollment period, which you may be in the middle of if you just started at your company. If not, you’ll have to wait for the next enrollment period to come around, unless you have a qualifying life event, like a birth or marriage. Luckily, if you ever lose your other source of coverage, you’ll be able to jump back on your employer’s plan immediately. Keep in mind that this only happens if your coverage has expired or otherwise ended — not from you stopping payment or deciding you don’t want it anymore.

3. Assess your options

What kind of plan do you want? Ask for a copy of the summary of benefits and coverage from your employer so you can compare it with the one you’re interested in or already have in place through a partner, a parent if you’re under 26 (yay ACA!), the individual market, or another source. Keep in mind that if your company-sponsored option meets the ACA standards and you waive, you no longer qualify for any premium Marketplace subsidies. It may look like you are at first, but the IRS will see that your employer offered it and will take back any credit you received.

4. Sign your waiver of coverage

Now, ask your employer for a waiver of coverage form. You’ll have to fill out the following details:

    1. Your name
    2. Social Security number
    3. Policy number and carrier information for your main plan
    4. Waiver of coverage explanation

The waiver of coverage explanation typically contains language that says you understand that if you reject coverage, you won’t be able join the plan until the next open enrollment period, or if you experience a qualifying life event. It also lays out what those special periods entail.

5. That’s it!

You have successfully waived coverage the right way.

ACA checklist

For employers

1. Brush up on your responsibilities

As an employer, your goal is to make sure all full-time employees have the chance to sign up for health insurance during open enrollment. Everything rides on this. If someone wasn’t given an opportunity, they can sign up for a plan from HealthCare.gov and then claim a premium subsidy on their taxes. This can trigger an audit for any employer, but if you’re a company with 50 or more FTEs, it will unlock a penalty. Basically, it’s telling the IRS that you didn’t offer your employee adequate health insurance, even though you were supposed to.

2. Know your carrier’s participation requirements

Most insurance companies require a certain amount of employees to join a group plan. The number is usually around 75 percent, but it varies by carrier. Now, you may be thinking that it’s bad for your business when an employee waives coverage. Not quite. If an employee has a valid waiver of coverage, the carrier won’t apply that person toward your minimum. Employees with a valid waiver get taken out of the denominator for the participation calculation.

3. Educate, educate, educate

Before any decisions are made, make sure you’ve properly educated the team on what their choices are. Not only is this important for their well-being, but it can also have potential repercussions if you have more than 50 FTEs, and they enroll in another option and then claim a premium subsidy. If an employee buys a plan that doesn’t meet the minimum value standard, it’s not ideal, but everything won’t come crashing down. You have to comply with the ACA, but if one of your employees doesn’t, you’re not at fault in the eyes of the IRS.

4. Request a waiver of coverage

Now, ask your carrier for a waiver of coverage form, and hand it to your employee to complete (many services can help you do this directly online). The form acknowledges that your teammate was offered coverage but decided not to enroll. Here’s a sample form from Anthem to give you an idea of what you’ll be dealing with.

5. Learn how it plays into reporting

All you have to do is put any code besides 2C on line 16 of your 1095-C form, and that tells the IRS that your teammate waived coverage.

1095-C

6. You’re done!

Waving goodbye to coverage is just a fact of life for many folks. And by studying up on the best course of action, you’ll be able to get — or help someone get — the plan that works for all of life’s ebbs and flows.

About Lauren Fifield

Lauren is a health tech veteran and a licensed producer of accident, health, and life insurance. She currently leads benefits advising and operations at Gusto. You can get in touch with Lauren here.