Employer sponsored health insurance plans are often more affordable than seeking coverage on your own. But you aren’t required to accept your company’s health insurance coverage.

There are scenarios in which it may make more sense to decline employer health insurance and opt for a plan through the Healthcare.gov marketplace, directly from a private health insurance company or through another source, such as Medicare or Medicaid.

Learn the advantages and disadvantages of employer health insurance vs. an individual health plan. Crunch the numbers carefully and determine which choice is best for you. And learn how to get medical insurance if you leave your employer.

Why do people decline employer sponsored coverage?

Here are three reasons why a person may reject employer health insurance:

A plan’s premiums and out-of-pocket costs

Most employers cover 60 to 80% of the costs of their health insurance, but they’re only required to cover at least 50% by law.

Kaiser Family Foundation estimates that the average annual premiums for employer sponsored health insurance in 2019 were $7,470 for single coverage and $21,342 for family coverage. Employers picked up well more than half of those costs.

The average single coverage premium that workers pay was $1,243 and family coverage was $5,588.

By contrast, Affordable Care Act (ACA) insurance plans in 2020 that were unsubsidized had annual average premiums of $5,472 for individual health insurance coverage and $13,824 for family coverage.

“Depending on your employer’s contribution, a significant amount of the expense may be deducted from payroll to cover the employee’s remaining portion of the premium,” explains Jacquelynn Neat, president/founder of Indigo Care Partners in Overland Park, Kansas. “Also, if you need to enroll a spouse and/or dependent child, it may be less expensive to seek alternative plans, such as those available at Healthcare.gov.”

A spouse can get a better health plan

Alex Kronk, owner of HealthPlanCritic.com in Raleigh, North Carolina, notes that many opt to turn down medical employer health coverage if a spouse has a lower-cost plan with better health benefits.

A plan’s provider network

Employees may decline an employer plan if they find that their providers and hospitals don’t take the insurance plan.

How are group and individual medical coverage different?

Employers design group health insurance plans. So, they decide on the health insurance company, network, copays and deductibles. This health coverage is only provided to those who are currently employed as well as their dependents in many cases. Nick Schrader, an insurance agent with Texas General Insurance based in Houston, said employer sponsored health plans aren’t individualized.

However, people may find coverage for individuals and families through the ACA exchange or directly from insurance companies that better fit their needs. That way, they can choose the copays and out-of-pocket costs and the benefit design, such as a health maintenance organization (HMO) or preferred provider organization (PPO), that make sense for them.

A plan’s benefit design influences such vital parts of health insurance as to whether you need referrals to see specialists and if you can visit doctors outside of the plan’s network.

“Self-purchased plans, such as those offered at Healthcare.gov, are chosen by you — you can select the deductible, copay and network that best fits your needs,” Neat adds.

However, your marketplace options can depend partly on your ZIP code.

“In some areas, there are very few options for individual plans, so even if you wanted a network that includes your doctor or a low-deductible plan, it may not be available.”

Here is how an employer sponsored plan compares to other health coverage options:

PlanProsCons
Employer sponsored health insuranceEmployer helps pay so can be more affordable than other options
You can usually add your spouse and dependents to the plan
Limited to your employer’s choices
Coverage is limited to your employment so if you lose your job, you can get COBRA, which is expensive, or you have to find another plan
ACA plan through marketplaceACA marketplace offers multiple options in most parts of the country
Gives you more flexibility to find a health plan that may fit your needs
If you qualify for subsidies, you may find a plan more affordable than an employer plan
Without subsidies, ACA plans can be pricey
Most areas have multiple ACA plans of varying benefit design and costs
Some parts of the country have limited options
ACA plans often have limited provider networks
Individual plan outside marketplaceMore choices, but takes some digging to see which plans are offered in your area
You’re not as limited as with other options, but it also requires you to work directly with the insurance companies
No subsidies, so these plans are usually more expensive than ACA plans or employer plans
MedicareUsually multiple Medicare Advantage plans offered by private insurance companies and Original Medicare
Most areas options with different benefit designs and costs
Must meet age or disability requirement to qualify for Medicare
MedicaidMost affordable option
Comprehensive coverage for little to no money
Costs based on your income
Must meet income requirement to qualify
Members usually can’t choose between plans
You may have trouble finding providers that accept Medicaid in your area

Find out more about employer health insurance vs. individual plans.

Is it better to get employer sponsored health insurance or on your own?

Employer based health insurance is often more affordable than an individual plan, but not always — and you may find an ACA plan with a better provider network.

Brian Colburn, senior vice president of corporate development & strategy at Waltham, Massachusetts-headquartered Alegeus, says that, despite the advantages of employer group insurance plans, many still choose to purchase individual health insurance.

“Oftentimes, this happens when the employee’s needs don’t match up with what the employer sponsored coverage offers. If you have unique health care needs, desire doctors and specialists out of network or want a more bare-bones plan, the individual marketplace can be a good alternative,” says Colburn.

Neat explains that it may be best to shop for coverage at Healthcare.gov if you qualify for an income-based subsidy. The ACA marketplace provides subsidies and tax credits to help people pay for ACA plans. The subsidies can save members hundreds of dollars each month, but they aren’t available for plans outside of the ACA marketplace.

“If you are self-employed or you do not have affordable options at work, an individual ACA or private marketplace plan may be the only option in your area. The good news is that ACA plans have no penalties for pre-existing conditions, so if you are struggling with a health condition, this may be your best choice,” she says.

However, if your income is too high to qualify for a government subsidy in the ACA marketplace, premium costs and high out-of-pocket expenses can be a real hardship.

“In this instance, an employer sponsored group plan may provide lower deductibles and help ease the burden of a high premium,” says Neat.

Can employees decline employer sponsored health coverage?

You aren’t required to accept an employer health insurance plan. You can decline or waive this benefit.

“But you may have to sign a waiver that you will be obtaining another insurance plan or accepting someone else’s insurance coverage so that your employer has proof that you are insured for legal purposes,” Schrader says.

If you decline or waive your employer sponsored coverage, you are allowed to enroll later during the employer’s open enrollment period unless you qualify for a special enrollment because of a qualifying event.

“Certain qualifying life events, such as you losing coverage not provided by your employer, getting married or having children may trigger a special open enrollment period during which you can sign up for group coverage at work, too,” says Kronk.

Also, be aware that, once you sign up for employer sponsored health coverage and agree to have your premiums deducted from your paychecks, “you can’t drop coverage during the year unless you experience a qualifying life event. Under new IRS rules established as a result of the Covid-19 pandemic, you can drop your coverage but only if you replace it with another form of comprehensive coverage,” says Colburn.

Do you get paid more if you decline employer sponsored plan?

It may be possible to negotiate a higher salary if you decline coverage, as waiving this benefit could save your company thousands of dollars a year.

“If you want minimum coverage and can negotiate a higher salary from your employer, you could save some money buying a low-cost plan on the ACA exchange, particularly if you are lower-income and can receive a premium tax credit,” Kronk says.

However, due to tax discrimination laws, employee benefits are typically a ‘take-it-or-leave-it’ option. Your employer may not legally be able to increase your income if you opt out of health benefits, cautions Neat.

How long must an employer provide health insurance after termination?

There is no particular time frame when an employer must keep your health insurance coverage after a job termination. This decision is up to the company.

Some employers cancel health insurance on the day of termination. Others wait until the end of the month or a few months so that you can have extra time to seek new employment.

That being said, most employers are required to provide you access to its employer health insurance plan for at least 18 months after termination through COBRA (the Consolidated Omnibus Budget Reconciliation Act). COBRA requires that private employers with at least 20 employees offer COBRA benefits to former employees, except those fired for “gross misconduct.” Many states also have mini-COBRA laws for small businesses.

“Note that you’ll pay the full price of health insurance during this COBRA period, with no subsidies provided from your employer, so expect to pay costly premiums,” adds Kronk.

Find out more about COBRA costs.

When you might want out of your employer’s health insurance plan

Here are five scenarios when you might want to opt out of the group insurance at work and buy health insurance on your own.

Your employer offers health insurance coverage, but it doesn’t contribute enough for the premiums

The amount employers subsidize can vary by employer. If your employer doesn’t help much to pay premiums, you might find a better deal by buying an individual health plan, especially if you qualify for subsidies in an ACA plan.

Your employer offers coverage, but you think it’s a lousy plan

Under the Affordable Care Act, employer sponsored plans must cover at least 60% of medical expenses for a “standard population.” In that case, the employee pays 40% of their health care expenses through deductibles, coinsurance and copayments. Your plan will state whether it meets the percentage requirement.

Similarly, your boss could offer a plan that you think is too expensive and that you can’t afford it. However, you may find that prices on the individual market are high, too.

Note that if you decline your employer-based insurance, you’ll forfeit any financial assistance your employer offers to cover its cost. Plus, you won’t be eligible for premium tax credits for a marketplace plan if your job-based insurance is deemed affordable and meets minimum value requirements under the law.

You’re about to lose your job or you’ve lost your job and are offered COBRA

COBRA law gives you the right to continue the plan you had through your work after leaving a job, but your employer doesn’t subsidize your premiums.

Besides, if you lose coverage through a job loss, it’s considered a “qualifying life event” and you’re entitled to a special enrollment period for a health plan. So, if you lose your job after the regular open enrollment period has ended, you qualify for a special open enrollment of 60 days.

Your employer’s family coverage is too expensive

Work-based coverage is considered “affordable” if the employee’s share of the annual premium for the lowest-priced individual plan costs no more than 9.5% of annual household income. For that reason, premiums for your entire family can total more than 9.5% of your income, yet you still won’t qualify for tax credits to buy insurance through a health insurance marketplace.

If this is true, it’s smart to shop around for options, including provided by your employer and available on the private market, to determine where you can land the best coverage for your family at an affordable price.

Your providers don’t accept the employer’s health insurance plan

Doctors don’t take every type of health insurance plan. So, it’s wise to check a health plan’s provider network before signing up.

If your providers aren’t considered in-network, you may have to pay all or more of the costs depending on the type of health plan.

What health insurance covers you if you lose your job?

COBRA insurance typically covers employees who worked at companies with at least 20 employees.

COBRA allows you to extend your previous employer’s health insurance coverage, but the employer no longer helps you pay for the plan. You have to pay the entire amount for health insurance coverage, which can be substantial.

You can also go on the ACA marketplace to see what plans are available in your area. ACA subsidies can reduce your costs if you qualify. However, if you don’t qualify for subsidies, ACA plans can be pricey — though not as costly as a COBRA plan.

Another option is to get an individual plan directly from a health insurance company. Those plans aren’t eligible for subsidies, but you may find an affordable plan by working with a health insurer.