Payment for Not Electing Health Insurance

Q: May a district pay an employee for waiving health care coverage?

A: Yes, if an employee declines health insurance coverage, a school district may choose to pay an employee. Currently, TASB HR Services advises against this practice. Here’s why:

Districts are required to contribute a minimum monthly amount of $225 toward the monthly insurance premiums for each employee who participates in the monthly insurance plan and who is a member of the Teacher Retirement System (TRS). There is no requirement to pay employees an equivalent amount.

The state pays $75 per month for each qualifying employee and districts are required to contribute at least $150 per month. Districts may choose to contribute more than $150, which many do.

Perceptions

Providing this benefit adds to the employee’s overall compensation, resulting in an increase in pay and may create perceptions of pay inequity. Additionally, the public may feel providing employees the benefit as cash is an unaccountable way of spending district funds. The funds allocated are the result of state requirements and are intended for health insurance coverage and not for an employee pay increase.

Taking It Away

Once a district begins this practice, it would be difficult to discontinue it. As stated above, this amounts to at least $1,800 per year in additional compensation, which is more than the average yearly pay increase received in many school districts. Employees budget according to their monthly income. Discontinuing the extra cash payments would be a reduction in income that may impact the employee’s ability to meet their financial obligations.

Tax Implications

Just like any funds given to an employee by the school district, tax implications exist. Money given directly to the employee would be considered compensation and subject to taxes just like any other compensation.

Making the Choice

Careful consideration should be given by any district that is looking at adopting this practice. It is best practice for funds allocated for specific categories to remain in those categories (i.e., salary versus benefits). Providing this monthly amount to all employees, whether they participate in the insurance plan or not, can create a financial burden for the district. Calculating the initial costs and consequences of the implementation are important.

Additionally, if such a payment is considered an unconditional opt-out payment, this decision could impact the district's affordability calculations under the Affordable Care Act (ACA). Please consult your school district’s legal counsel about implications for your district.