Opting Out of Employer Health Insurance: When Does it Make Sense?
Most people get health insurance through their employer as an employee benefit. This is commonly called employer-sponsored coverage.
Others may get health insurance through the health insurance marketplace, a health insurance broker, or government programs.
Additionally, you may be able to get coverage through your spouse or another option.
To make things even better:
Some employers offer employees an eligible opt-out arrangement.
These arrangements could pay you to not sign up for health insurance through work.
You may wonder if it makes sense to opt out of an employee health insurance plan.
Here are some things to consider before you do.
When Does Opting Out of Employer Health Insurance Makes Sense?
Opting out of employer health insurance could make sense.
It is situation-dependent.
If you do opt out, you need to make sure you have your bases covered.
Going uninsured generally isn’t a good idea. A single nasty accident or severe illness could easily bankrupt most people.
Instead, most people should only opt out when they have a better health insurance option outside of their employer.
Employer compensation to opt out
In some cases, employers offer opt out programs to eligible employees.
This helps employers keep their healthcare costs down.
The programs generally work by paying you to opt out of a workplace health insurance plan. The payment amount is smaller than they’d spend on your benefit costs for health insurance.
These opt-outs can be convoluted on the employer side. These plans have various rules for your employer thanks to the Affordable Care Act.
For instance, the type of opt-out matters. There are unconditional opt-outs, with no requirements, or conditional opt-outs, where you must meet specific requirements.
Compare payout vs. coverage
Other factors also come into play, such as an affordability calculation.
The good news:
These complicated things don’t matter to you.
All you should care about is if you receive cash in lieu of taking health insurance, which is essentially an opt-out payment.
You must then decide if the payment is a better deal than taking the coverage.
Ask your employer’s payroll, human resources or benefits department to see if they offer an opt-out.
If your employer is a small business, they may not have these departments. Instead, talk to your manager or the owner.
Find out how the program works. Ask how much money you could receive for opting out.
Most employers don’t offer an opt-out arrangement. If yours doesn’t, it may still make sense to decline coverage.
Find out what other health insurance options you have. Then, run the numbers to see if it makes sense.
How to Opt Out of an Employer’s Health Insurance
If you’re enrolled in your employer’s health insurance plan, you can cancel your coverage at two times.
You can decline coverage and opt out during the plan’s next open enrollment period. This is usually toward the end of the year.
If you qualify for a special enrollment period, you can make changes to your health insurance plan during these periods, as well.
- Special enrollment periods can trigger if you:
- Get married or divorced
- Have a baby
- Move a certain distance from your old home
- Under certain other circumstances
During any of these times, let your employer know you no longer want health insurance coverage.
Depending on the type of period, the coverage may stop quickly or at the beginning of the next plan year.
If your employer has an opt-out program that pays when a person declines coverage, consult with your employer.
They can tell you the details of how to opt out to receive the opt-out payments and when you can do so.
Alternative Coverage Options Exist
If you’re thinking about opting out, you need another source of health insurance.
Here are a few options you may want to consider:
Your spouse’s plan
It may make more sense for married individuals to take part in their spouse’s health insurance plan.
Their coverage could be superior, their premiums could be lower, or both.
Make sure your spouse’s employer will allow you to get on their plan, though.
Some employers don’t allow spouses to join health insurance plans if they can get coverage through their employer.
Your parents’ plans
If you’re under age 26, you may be able to get health insurance through one of your parents’ health insurance plans.
Talk to your parents and have them look into this to see if it is an option worth considering.
The healthcare marketplace was created as part of the Affordable Care Act.
Many states use Healthcare.gov for their marketplace. However, some states have set up their own marketplaces.
Marketplaces ask some questions to determine whether you can receive a premium tax credit. This credit could lower a marketplace health insurance plan’s cost.
Then, the marketplace displays the health insurance plan options available to you based on your location.
Don’t think you can opt out of your employer’s workplace plan and get a premium tax credit on a marketplace, though.
In most instances, you have to pay full price on the marketplace if you decline your employer’s coverage.
Certain exceptions do exist if your workplace plan is not considered affordable, though.
Health insurance brokers
Health insurance brokers can sell policies from several companies. This is good because it allows you to compare plans and find the best fit for you.
Brokers work on commission and are paid by the health insurance companies. This model is helpful because you don’t have to pay for the broker’s services directly.
The plan you end up with could be influenced by the agent’s commission.
If Company A pays double what Company B does for a new health insurance plan sign up, the agent may be tempted to push you toward Company A to make more money.
Additionally, brokers may not have access to all health insurance companies’ plans. If the broker doesn’t work with a company, their plans likely won’t be considered.
Medicaid may be an option if you have a relatively low income.
Each state runs its own Medicaid program. Therefore, the income limits vary by state and your household’s size.
Check with your state’s Medicaid program to see if you may qualify for coverage. If you do, make sure you understand how it works.
Medicaid may provide coverage, but it likely isn’t the same coverage level as other health insurance plans.
How to Shop for Individual Health Insurance Coverage
Shopping for individual health insurance coverage requires balancing several competing factors.
You ideally want to find an affordable plan that offers the coverage you need at the providers you want to use.
Unfortunately, the price usually increases with the more useful factors included with a health insurance plan. If you get a great network of providers with a low deductible and low copays, expect a very high monthly premium.
The reverse is also true. The more affordable plans usually have astronomical deductibles or a minimal network of providers. If you decide to use an out-of-network provider, you may have to pay even more.
To help you decide which plan might work best for you, you need to think about your medical needs.
Review previous medical needs
First, consider what you have used your health insurance for over the last year.
See how much that would cost on your employer’s plan versus other plan options.
Projected medical needs
Then, think about what medical needs you may have over the next year. If your needs are similar from year to year, the process is more straightforward.
That said, unique circumstances make this exercise more complicated.
For instance, someone planning to have a baby next year may opt for a more expensive health insurance plan that provides more coverage.
It’s essential to carefully consider all of these factors and any other items that may impact your medical needs before choosing a plan.
Choosing the right plan could save you a lot of money.
Making decisions about health insurance isn’t always straightforward.
Your employer often offers the best health coverage you have access to at the most affordable price.
Employers don’t offer the only coverage option, though. You may be one of the exceptions and want to opt out of employee health insurance.
Maybe your employer offers a nice opt-out benefit and you can get on your spouse’s superior plan. It’s worth considering if you should opt out of your employer’s group health plan in these cases.
Ultimately, you have to weigh the benefits and drawbacks of each option you have. Only then can you choose the best alternative for you and your family.