Can an employee cancel their health insurance at any time

Employees now have two new options for getting out of their employer’s group health plan mid-year. The new regulations (IRS Notice 2014-55) outline two additional ways employees covered by their employer’s cafeteria plan can change their health insurance plan elections during a plan year. Here’s what you need to know about the new cafeteria rules effective September 12, 2014.

First, a bit of background on cafeteria plan rules. Under longstanding IRS rules, employees cannot change their cafeteria plan elections mid-year except in these two situations:

The employer’s written cafeteria plan allows mid-year election changes, and

Any election changes that the plan allows must be permitted under IRS rules. For example, employees may be permitted to change their elections when they experience certain life events (e.g. get married, have or adopt a child, lose or gain eligibility under the terms of the plan).

In Notice 2014-55, the IRS outlines two new scenarios when employees may revoke their plan elections:

An employee’s hours were reduced to fewer than 30 hours (on average) per week and the employee is still eligible for the employer’s health plan coverage.

An employee wants to stop participating in the employer’s group health plan to instead purchase coverage through an ACA Marketplace. This could be to enroll in a Marketplace plan during the annual open enrollment period, or during a Special Enrollment Period. To be eligible for a Special Enrollment Period, an employee must have a Qualifying Life Event such as a marriage or divorce, birth or adoption of a child, loss of employer-based coverage, etc.

Note: These new cafeteria plan rules apply to health plans that provide minimum essential coverage. The new rules do not apply to Health FSAs.

For employees, this means if your hours are reduced or if you can find better, more affordable coverage on the Marketplace, you may be eligible to cancel your enrollment in your employer’s group health plan before the end of the plan year.

For employers, it is important to understand these new plan election rules and decide if you will update your plan documents.

As with the other cafeteria plan change in status rules, these new election changes are voluntary. You (as an employer) are not required to adopt them. If you decide to extend the new permitted election change opportunities to employees you will need to amend your cafeteria plans to allow the changes.

According to the IRS, the amendment must be adopted by the last day of the plan year in which the changes are allowed, and may be effective retroactively to the first day of that plan year; however, any election changes may not have a retroactive effect. For plan years beginning in 2014, you have until the last day of the 2015 plan year to amend the plan.

Tip: If you want all employees to get out of their group health plan mid-year, you (as an employer) can simply cancel the group health plan. Usually you can cancel the group health plan at any time during the year. By canceling the group health plan you automatically make all employees eligible for a Special Enrollment Period and allow all employees to purchase coverage on the Marketplace.

For the full version of IRS Notice 2014-55, click here.

Questions about how to get out of your employer's health plan mid-year, or about the new cafeteria rules? Leave a comment. We'll help answer it.

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