Short answer: An opt-out payment is cash an employer offers employees who decline its health coverage. An unconditional opt-out payment generally must be added to the employee’s required contribution when testing ACA affordability, which can make otherwise-affordable coverage “unaffordable.”
Some employers offer a cash “opt-out” payment to employees who waive the group health plan. The catch is how it interacts with the ACA employer mandate.
If the opt-out payment is unconditional (the employee gets the cash just for declining), the IRS treats it as effectively increasing the cost of the coverage: the opt-out amount must be added to the employee’s required premium contribution when measuring affordability. That can push the plan over the affordability threshold (9.96% of income for 2026) and expose an applicable large employer to penalties.
An eligible opt-out arrangement avoids this: if the employee must attest to having other minimum essential coverage (for example, a spouse’s plan) to receive the payment, the opt-out amount does not count against affordability.
Sources
- IRS Notice 2015-87 and proposed regulations on opt-out payments; IRC §4980H affordability rules.
Content history
Originally published: June 16, 2026
Last reviewed: June 16, 2026