Do You Have to Take the Health Insurance Your Employer Offers?

Deciding whether to accept employer-offered health insurance is a common question. While there is generally no federal requirement for an individual to enroll, declining it can lead to various important financial and logistical considerations. Understanding these implications is essential for an informed decision.

Employer Coverage and Individual Mandate

Individuals are not federally required to accept health insurance offered by their employer. The federal penalty for not having health insurance was eliminated as of January 1, 2019. While some states may have their own mandates and associated penalties, this is not a nationwide federal obligation.

The Affordable Care Act (ACA) includes an employer mandate, but this applies to employers, not individual employees. Applicable Large Employers (ALEs), those with 50 or more full-time equivalent employees, must offer affordable health coverage with minimum value to at least 95% of their full-time employees and their dependents. Failing to meet this requirement can result in penalties for the employer, but it does not compel employees to enroll in the coverage.

Impact on Marketplace Subsidies

Declining employer coverage impacts eligibility for subsidies on the ACA Health Insurance Marketplace. If employer-sponsored coverage is deemed “affordable” and provides “minimum value,” an individual is generally not eligible for premium tax credits (subsidies) or cost-sharing reductions on the Marketplace. This rule exists even if an individual chooses not to enroll in the employer plan.

Affordability is determined annually by the Internal Revenue Service (IRS). For plan years beginning in 2025, employer-sponsored coverage is considered affordable if the employee’s share of the self-only premium does not exceed 9.02% of their household income. This calculation focuses on the cost for self-only coverage, not family coverage.

Minimum value means the plan pays at least 60% of covered services for a standard population, including substantial coverage for physician and inpatient hospital services. If the employer plan meets both affordability and minimum value criteria, even if an individual declines it, they typically cannot receive Marketplace subsidies.

Historically, the “family glitch” prevented family members from receiving Marketplace subsidies if the employee’s self-only coverage was affordable, even if family coverage was prohibitively high. This issue was addressed, with a fix effective for plan years beginning in 2023. Now, the affordability determination for family members is made separately based on the cost of family coverage, potentially allowing them to qualify for subsidies even if the employee’s self-only coverage is considered affordable.

Evaluating Financial and Enrollment Factors

Several financial and logistical factors warrant careful consideration when declining employer-sponsored health insurance. Employer-sponsored plan premiums are often paid with pre-tax dollars, reducing taxable income. In contrast, premiums for independently purchased plans, like those from the Marketplace without subsidies, are typically paid with after-tax dollars.

Declining employer coverage means an individual cannot simply enroll in the plan later unless a specific event triggers a Special Enrollment Period (SEP). SEPs allow enrollment outside the annual open enrollment period for qualifying life events. Qualifying life events include changes in household status (marriage, birth, divorce) or loss of other health coverage (job loss, aging off a parent’s plan). Individuals usually have a 60-day window following a qualifying life event to enroll in a new plan.

Comparing total out-of-pocket costs between an employer plan and an alternative is important. This includes deductibles, copayments, coinsurance, and annual out-of-pocket maximums.

For individuals transitioning between jobs, COBRA offers temporary continuation of employer-sponsored health coverage. COBRA allows individuals to maintain previous group health plan benefits temporarily, but it can be expensive. The individual becomes responsible for the entire premium, including the employer’s previous portion, plus a 2% administrative fee. COBRA premiums, ranging from $400 to $700 per month per person, are often more costly than subsidized Marketplace plans or employer-subsidized coverage.

Alternative Health Coverage Options

If an individual declines their employer’s health plan, various alternative coverage options are available. Enrolling in a spouse’s employer-sponsored health plan is a common alternative, if available. This may incur additional costs for family coverage on the spouse’s plan.

Individuals can also purchase a health plan directly from the ACA Health Insurance Marketplace without subsidies, particularly if they do not qualify for premium tax credits. These plans comply with ACA regulations, offering essential health benefits and consumer protections.

Medicaid or the Children’s Health Insurance Program (CHIP) provides another pathway to coverage for low-income individuals and families. Eligibility for these programs varies based on household income, family size, and state-specific rules; CHIP primarily covers children and sometimes pregnant women.

Medicare is a federal health insurance program primarily for individuals aged 65 or older. Younger individuals may also qualify for Medicare with specific disabilities, such as End-Stage Renal Disease or Amyotrophic Lateral Sclerosis (ALS), after a waiting period.

Short-term health plans are temporary coverage options, typically lasting a few months, with a maximum total duration of four months including renewals. These plans are not subject to ACA regulations; they often do not cover pre-existing conditions and may exclude essential health benefits like preventive care or prescription drugs. Short-term plans are intended to bridge brief gaps in coverage rather than serve as comprehensive, long-term health insurance.