Low enrollment in a group health plan may reveal more than employee preferences. Here's what employers should examine before their next renewal.
Your company offers health insurance, contributes toward premiums, and reviews the plan every year. Yet a significant number of employees keep turning down coverage.
That may be perfectly reasonable. Some employees are insured through a spouse. Others have access to different coverage. But if employees are declining because the plan costs too much or doesn't meet their needs, it's worth investigating before the next renewal.
Low participation can affect more than employee satisfaction. Depending on the insurance market and carrier, it can also create problems with group-plan eligibility.
Many employers don't discover participation requirements until they're shopping for coverage or preparing to renew.
In the small-group market, carriers commonly set a minimum participation requirement. Through SHOP, the standard is 70% in most states, and employees enrolled in other qualifying coverage are generally excluded from the count rather than treated as declining.
Federal rules include an important exception: when an eligible small employer cannot meet applicable participation or contribution requirements, the insurer may restrict the availability of coverage to an annual enrollment window from November 15 through December 15. Coverage must remain available during that window despite those unmet requirements, subject to other applicable eligibility and enrollment rules.
This provision is not limited to SHOP coverage.
Large-group coverage follows different rules. For example, New York prohibits insurers from imposing minimum participation requirements when initially offering or renewing large-group coverage. Employers should confirm the requirements applicable to their state, insurance market, and carrier.
Consider a hypothetical company with 40 eligible employees, 22 of whom enroll in its group plan. That's 55% participation.
But suppose 10 of the 18 employees who declined are covered through a spouse or another qualifying source. If those waivers are excluded under the applicable participation rules, the calculation becomes 22 out of 30 — approximately 73%.
Same workforce, very different result.
Before assuming there's a participation problem, find out why employees are declining coverage.
Imagine that employees in one location have good access to the plan's provider network, while employees elsewhere struggle to find participating physicians. Or that the employer contribution is reasonable for some employees but leaves others with premiums they find difficult to manage.
A different group plan might solve those problems. But changing carriers without understanding why employees are declining coverage risks repeating the same experience next year.
Employers should examine employee contributions, network availability, geographic distribution, and the reasons behind coverage waivers.
For employers subject to the ACA employer shared responsibility provisions, affordability deserves additional attention. If an applicable large employer offers unaffordable coverage and a full-time employee receives a premium tax credit, an employer shared responsibility payment may apply under Section 4980H(b).
A CHOICE Arrangement (ICHRA) allows an employer to establish a defined reimbursement allowance for eligible employees who obtain qualifying individual health insurance coverage.
Rather than selecting one group insurance offering for everyone, the employer establishes the reimbursement arrangement while employees select qualifying individual coverage available to them.
Unlike traditional group insurance arrangements that may impose minimum participation requirements, an ICHRA does not generally require a minimum percentage of eligible employees to accept the offer.
That distinction can matter for employers struggling with group-plan participation.
It does not, however, mean an ICHRA will automatically cost less or provide better coverage. Individual premiums, local carrier availability, provider networks, and employer contribution levels must be compared before making a decision.
No. Not simply because they declined coverage.
ICHRA eligibility must follow permitted employee-class rules. Employers cannot create a class based solely on which employees accepted or waived group insurance.
Federal regulations permit distinctions based on certain employment characteristics, including full-time or part-time status, geographic location, and other specified categories.
An employer may offer a traditional group health plan to one permitted class and an ICHRA to another, subject to applicable requirements. But employees in the same class generally cannot be offered a choice between traditional group coverage and ICHRA.
Minimum class-size requirements may also apply when an employer combines the two approaches.
The distinction is important: ICHRA is an alternative benefits structure, not a workaround for selectively moving employees who declined group coverage.
Related reading — Employee Classes
For 2027, the IRS affordability percentage is 10.22%.
ICHRA affordability generally considers the monthly premium for the lowest-cost Silver plan available for self-only coverage in the employee's applicable Marketplace rating area, reduced by the monthly ICHRA allowance, compared with the applicable percentage of household income. Employers subject to Section 4980H may use permitted safe harbors for their compliance calculations.
The premium tax credit rules also matter.
If the ICHRA offer is considered affordable, the employee generally cannot receive Marketplace premium tax credits, even if the employee declines the ICHRA.
If the offer is unaffordable, the employee may qualify for premium tax credits if they opt out of the ICHRA, waive future reimbursements, and otherwise meet the eligibility requirements.
Employers should examine these consequences before deciding whether an ICHRA is suitable for their workforce.
Explore — Lirvion Affordability Calculator
Related reading — Section 125 Cafeteria Plans and ICHRA: How Pre-Tax Premium Payments Work
Start by reviewing the employees who waived coverage. Separate those with other insurance from those who declined because of price, networks, or plan design.
Then ask your benefits advisor to compare the existing group plan with realistic alternatives, including individual-market coverage where appropriate. The comparison should account for employer contributions, employee costs, geographic differences, and compliance obligations.
An experienced broker can help evaluate these options. Employers considering ICHRA should also understand the operational requirements of enrollment, coverage verification, reimbursement administration, and ongoing reporting.
The right decision may be to improve the existing group plan, adopt a different group offering, or evaluate a CHOICE Arrangement.
What matters is identifying the underlying problem before choosing the solution.
Lirvion provides nationwide CHOICE Arrangement (ICHRA) administration technology for employers and their benefits partners.
Our platform supports employer setup, enrollment workflows, coverage verification, payment coordination, reconciliation, and ongoing administrative processes.
Employers evaluating a transition can also explore Lirvion's coverage and affordability tools to better understand how an ICHRA might work for their workforce.
If your employees are declining health coverage, don't assume another renewal quote is the only answer. Understanding the reasons behind those decisions is the first step toward a more effective benefits strategy.
If employees are declining coverage, Lirvion can help you explore whether a CHOICE Arrangement (ICHRA) is right for your workforce.
