Opt-out payment calculator: is paying employees to waive coverage worth it?
Enter your waiver count, the monthly payment and what it costs to enroll an employee to see what an opt-out payment costs and how it compares with enrollment. Built for HR and finance teams weighing a waiver credit.
Compare an opt-out payment with enrollment cost.
Use your own assumptions. The result updates as you type.
Your assumption.
The employer share for the tier a waiving employee would likely choose.
Your estimate of how many would join the plan.
Your estimate
An estimate built on your own assumptions. It does not model effects on plan risk or participation. Check ACA affordability and tax treatment with your advisor.
What is an opt-out payment?
An opt-out payment, or waiver credit, is cash an employer gives an employee who declines the group health plan. It can lower the employer’s cost when the employee has other coverage, such as a spouse’s plan. It can also change who enrolls, because a payment makes waiving more attractive to employees who are healthy and expect little care.
What are the compliance points?
For ACA affordability, IRS guidance treats an unconditional payment as an added cost to the employee of enrolling, because the employee gives up the payment by joining. A payment conditioned on reasonable evidence that the employee has other employer or group coverage (not individual-market coverage) generally is not counted that way. The detailed rules come from IRS Notice 2015-87 and proposed regulations, which are not yet final, so confirm the current treatment before offering a payment. The payment is also taxable wages. These rules affect large employers and should be reviewed before a payment is offered.
Common questions
Does an opt-out payment raise or lower cost?
It lowers cost when it replaces enrollment for someone who would otherwise join. It raises cost when it goes to employees who would have waived anyway. The calculator uses your assumptions about both.
Is the payment taxable?
Yes. It is cash compensation and subject to income and payroll tax. It is not a pretax benefit.
Should the payment require proof of other coverage?
Many employers do. It limits the payment to employees who are covered elsewhere and keeps it from counting against affordability.
How does this fit with participation rules?
A payment can lower participation. If a carrier has a minimum participation requirement, check that the payment does not put the group below it.
Laws and rules referenced
IRS Notice 2015-87 — Treatment of opt-out payments for ACA affordability and Form 1095-C reporting (Part III, Q&A-9).
26 U.S.C. § 4980H — Employer shared responsibility: who is an applicable large employer and when a penalty applies.
26 U.S.C. § 36B(c)(2)(C) — Employer coverage is affordable when the employee’s cost is within the percentage of household income the IRS sets each year.
This tool gives estimates for education, not tax or legal advice. Rules change, so confirm your situation with a qualified advisor.
Talk to us about waiver credits
Book a 30-minute call and we will model the payment against your participation and your carrier’s rules. Visit us at 41000 Woodward Avenue, Suite 350 East, Bloomfield Hills, MI 48304, or call 248.370.8853.
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