When can employees opt out of health insurance?
Outside of the open enrollment period, employees may opt out of employer-sponsored group health insurance only if they experience a life status change event , sometimes called a qualifying life event (QLE) . The time periods allowed for such mid-year changes are called "special enrollment periods." Life status change events that may qualify employees to drop coverage mid-year include:
- Marriage
- Divorce
- Birth of a child
- Adoption of a child
- Changing a spouse's insurance
- Leaving the company (retirement, new job, dismissal)
- Becoming eligible for Medicare or Medicaid
- Enrollment in a Marketplace plan
- Vacation
- Significant changes in the cost or coverage of the plan
- Moving out of the plan area
Special enrollment periods are mandatory for some life status change events, but optional for others. In these cases, it is up to the employer to decide whether its benefit plan will allow employees to change plans or waive coverage.
Why can't employees just opt out of insurance?
Employer-sponsored group health insurance plans are subject to federal regulations. If health insurance is provided through a cafeteria plan ("Section 125 plan") and employees pay for coverage using pre-tax dollars, IRS regulations do not allow employees to change their plan choice mid-year without a substantiated life status change event.
Waiver of health insurance
If you are an employee who has the right to opt out of your plan, you should follow these steps:
- Contact your company's human resources department, or whoever is in charge of human resources if your company does not have a dedicated human resources department. They should be able to help you through the rejection process.
- To avoid a gap in coverage, make sure the start date of your new coverage falls on or slightly before the end date of your existing coverage.
- Fill out all the necessary paperwork and make sure you don't miss any deadlines.
What is an open enrollment period?
An open enrollment period is a time for employees to compare plans, review their health care needs, and change or cancel employer-sponsored health insurance plans. The open enrollment period is held once a year. The time and length of the period is determined by the employer. Generally, for calendar year insurance plans, open enrollment begins in November and lasts several weeks.
If employees select an insurance policy during open enrollment, they are locked in for the entire plan year unless they have a change in life status for which there is a special enrollment period.
Special enrollment periods: an exception to the rules
If you have a life status event, it may trigger a special enrollment period when you can cancel or make other changes to your health plan. The special enrollment period for employer-sponsored group plans is usually 30 days, but may be longer depending on the event.
Consequences of canceling insurance
Before you cancel your employer-provided group health insurance plan, you should know what could happen as a result. Here are some of the possible consequences of canceling:
- If there is any time between when you leave your current plan and when your new plan starts, you will not have health insurance unless you are covered by someone else's plan. If you need medical services or drugs, or have a medical emergency, you will not have coverage and will have to pay out of pocket. Getting medical care for serious illnesses may become unaffordable. (The same thing, only for a longer period of time, will happen if you don't enroll in a new plan at all.) To avoid this problem, make sure your new insurance starts on or before your old one ends.
- If your children, spouse, marriage partner, or both are insured under your plan, they will be without health insurance if there is a gap between your plans, unless they are insured under their own plan.
- Some states impose penalties if you do not have health insurance year-round. If you have a gap between when your coverage under your old plan ends and when your new plan starts, it could result in a penalty from the state.
- Company-sponsored cafeteria plans may also be subject to federal penalties for both the employee and the employer if the revocation is done improperly and violates Section 125 regulations.
If you are an HR professional, small business owner, or manager, the resources you provide can help an employee make the right decision on matters of utmost importance.