Q&A: Documenting an employee’s declination of health coverage

Q: How do we document that an employee has declined an offer of health insurance coverage?

A: Large employers—those with 50 or more full-time employees—face substantial penalties under the Affordable Care Act (ACA) if they don’t offer insurance to at least 95 percent of their full-time employees. As transition relief, the IRS has reduced the threshold to 70 percent for the 2015 plan year. Defending against these penalties requires documentation of offering health insurance coverage, specifically documenting which employees were offered coverage but declined.
The IRS has offered scant guidance on how to document offers of coverage, referring employers to “generally applicable substantiation and recordkeeping requirements.” Holly Murphy, senior attorney with the Texas Association of School Boards, offers this advice: “Have employees use the enrollment form for your district’s health insurance. Every enrollment form has a place for the employee to decline coverage.”
The enrollment form offers several advantages, according to Murphy. For one thing, the district doesn’t have to create a special form. For another, completing the enrollment form protects the employee from a loss of other coverage during the plan year. Employees often decline coverage because they have insurance through another source, such as a spouse’s insurance. Loss of other coverage is a ‘special enrollment event’ and the employee can enroll in the district’s insurance in the middle of the plan year, but only if the employee used the enrollment form to decline coverage.
A third benefit for districts that participate in TRS-ActiveCare is that the enrollment form provides a central source of data for ACA reporting. In fact, WellSystems, the TRS-ActiveCare third-party administrator, is now requiring that all employees either accept or decline coverage. When an employee declines enrollment through the WellSystems portal (Mesa), WellSystems becomes a repository for that data. At the end of the calendar year, the district can generate a census report that will reflect those who declined as well as those who enrolled.
Using WellSystems to document the employees declining coverage is a new concept for districts. Tracking down every employee to ensure that he or she went online and completed the process means more work and more headaches in the short run, but districts should see a payoff in the long run. “If the IRS shows up on the district’s doorstep, that electronic report will be a godsend,” said Murphy.