Health insurance is a great benefit to offer employees. According to the Bureau of Labor Statistics (BLS), about 60% of all private industry businesses offer health benefits. But, what happens when employees want to opt out of employer health insurance? They waive coverage.
When an employee wants to waive coverage, you need to know what to do. Learn how health insurance affects payroll, how employees can opt out, and more.
Health insurance and payroll
Many times, health insurance is an employer-sponsored benefit. This means that employers pay part or all of the health insurance premium for each employee.
Offering health insurance isn’t just an attractive small business employee benefit. It might also be your responsibility. You must offer health insurance if you have over 50 full-time equivalent employees, according to the Affordable Care Act.
If employees must contribute toward their insurance, deduct the amount from their paychecks. When an employee decides to waive coverage, you do not withhold the amount from their wages.
When employees decide to waive coverage, you can save some money. You don’t need to pay a portion or all of the employee’s premium.
What is a waiver of coverage?
The beautiful part about benefits like health insurance is that employees are not required to participate. There is no penalty for opting out of coverage.
When an employee doesn’t want health insurance from their employer, they waive coverage. Or, employees can waive coverage on behalf of a family member who was previously under their plan. A waiver of coverage is a form employees sign to opt out of insurance.
Employees can only waive coverage during certain time periods. Here are some examples of when employees can waive coverage:
- When the employee begins work at your business
- During open enrollment, which takes place toward the end of the year and allows employees to opt out of a health insurance plan
- If your business offers new coverage plans
- If the employee has a family status change, which is a qualifying life event that gives them the opportunity to remove benefits (e.g., marriage, divorce, birth)
Waiving coverage typically doesn’t last forever. During open enrollment, an employee can decide they want coverage even if they previously opted out. The employee doesn’t have to wait for open enrollment if they have a family status change.
Why would an employee waive coverage?
There are many reasons employees could have for opting out of health insurance. They might have a spouse who has health insurance, they might still be on their parents’ plan, or they might receive better coverage through an independent plan.
Employees cannot waive coverage just because they don’t want insurance. Under the Affordable Care Act, people without insurance will be penalized.
Employee health insurance waiver form
If an employee wants to opt out of employer-sponsored insurance, give them a health insurance waiver form. You can obtain a waiver of coverage form from your insurance carrier.
The employee must include information like their name, Social Security number, who they are waiving coverage for, and why they are waiving coverage on the waiver of coverage form. Then, the employee must sign and date the form.
After the employee fills out the waiver form, do not withhold insurance premiums from their paychecks. Keep a copy of their health insurance waiver form in your payroll records for at least three years.
Employees might need to sign waive coverage forms annually if they do not want insurance. This will depend on your carrier. If employees must sign yearly, make sure to distribute and collect forms during open enrollment.
Coverage and your responsibilities
Knowing what to do when employees waive coverage can get confusing. Here’s a brief layout of your employer responsibilities:
- Offer health coverage to employees
- Obtain waive coverage forms from your carrier
- Distribute forms to employees if they opt out of coverage
- Collect and store forms for at least three years
- Do not withhold money from employees’ paychecks for insurance
- Do not pay for insurance on behalf of employees who waived coverage
- Add or remove employees/family members to plans as needed
Remember to stay organized, communicate the benefits of the plan to your employees, and talk with your insurance provider if you have any questions.
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This is not intended as legal advice; for more information, please click here.