The IRS has released a proposed rule with details employers need in order to calculate if health insurance coverage offered to employees is “affordable,” as defined by the Affordable Care Act (ACA).
You’re probably already making salary reductions each pay period that must be counted toward employees’ required contributions to your company’s health plan.
But did you know opt-out payments may need to be treated the same way as salary reductions when it comes to calculating affordability?
That’s what the IRS said recently in Notice 2015-87.
Now this current proposed rule includes more information you can use to make sure your company’s math is right. After all, you run the risk of IRS penalties if your company’s coverage isn’t affordable and an employee claims the premium tax credit.
When to include opt-out payments
According to the proposed rule, you need to include unconditional opt-out payments when tallying up employees’ contributions.
With conditional opt-out payments, it depends. You can disregard them if employees are required to:
- decline enrollment in coverage, and
- provide “reasonable evidence” that minimum essential coverage has been or will be obtained elsewhere – for themselves and also for their family members.
But those are just the basics. Here are further facts to consider:
The opt-out arrangement should specify that an attestation from an employee about having coverage won’t be accepted as reasonable evidence if the employer knows or has reason to know coverage won’t be obtained.
Reasonable evidence must be provided by employees at least every plan year to which the eligible opt-out arrangement applies.
You can require reasonable evidence during your regular open enrollment period. Or it’s OK to wait until after the plan year starts, the proposed rule states – that way, you could get proof the employee enrolled in another employer-sponsored plan.