Paying Employees to Opt Out of Insurance? BEWARE

Seyfarth Synopsis: That “win-win” in contract negotiation wherein employees are paid to opt out of employer insurance has become much more complicated thanks to the IRS. Basically, if bargaining parties do not follow new IRS rules, those opt-out payments may end up costing an employer much more in the form of fines for not providing employees with affordable coverage under the Affordable Care Act (“ACA”).

 

In December 2015 the IRS announced that any unconditional payment to employees to opt out of employer-sponsored insurance was basically a salary reduction towards the payment of health insurance costs, since it is lost if the employee takes employer insurance. Thus, the amount of any unconditional opt-out payment should be counted along with any other employee premium contribution obligations towards whether employer-offered insurance is ”affordable.”

 

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