I Want To Drop My Insurance Coverage And My Employer Will Not Let Me. Can They Do That?

Employer-based healthcare is the most common type in the United States. Depending on the state you’re in, the rules can vary. Obamacare requires every state to meet certain standards, but they can be higher in states like Hawaii.

Of course, there are times when you don’t necessarily want a workplace plan. Maybe your spouse has coverage for your family. In some cases, you might just not like the plan they offer. If you prefer a marketplace plan, you may end up paying a higher monthly premium because your employer is offering an alternative health plan. But if you meet the right qualifications, you could choose alternative coverage.

In many cases, not only can the employer refuse to allow you to terminate and drop your insurance coverage, they must. Federal law limits when an employee may add, subtract or change coverage or coverage options.

Assuming that you have a traditional health insurance plan, the likelihood is very high that it is subject to Section 125 (of the IRS code) rules. If your share of the premium comes out of your paycheck pre-tax, or if pre-tax is an option even if you did not elect it, then Section 125 applies.

What If I Want to Change My Insurance Company or Coverage?

One of the requirements for that pre-tax status is that once you have made your coverage choices, changes can be made only within 30 days of a qualifying event, or during the next open enrollment period. The open enrollment period can be any time of year and is generally tied to the renewal of the policy. The most common times for open enrollment is mid-to-late fall (for changes to be effective January 1) or mid-spring (for changes to be effective July 1).

Qualifying events: A qualifying event for health insurance coverage would be things like when you’re hired on, the birth of a child, marriage, etc. Health insurance companies lay these events out for reference as needed. If you have questions regarding why, you can always ask your employer or the insurance company. Sometimes, it comes down to company policy. In general, if you have other coverage or meet certain qualifications, they should allow you to drop their healthcare and avoid deductions from your paycheck.

What If an Employer’s Health Care Doesn’t Meet Minimum Standards?

With a national standard, this is unlikely in many states. However, employers in states like Hawaii do sometimes choose plans that do not conform to state laws. If your state has stricter rules, employers are required to submit plans for approval, and this does not change because they have offices in other states.

If you have concerns about the individual health insurance you’re getting in relation to state laws, you can contact your state offices. They can clarify for you what the requirements are and what, if any, protections you’re entitled to.

If you’ve been asking yourself whether you can drop insurance at any time, read on to learn more. Or enter your ZIP code.

How Do Qualifying Events Work for the Health Insurance Marketplace?

Again, qualifying events include marriage, divorce, birth, or adoption of a child, death. Depending on how your plan is worded, it might also include legal separation, moving (or being transferred) out of state, or some other life-changing event. You will have to check with your HR department to see what your plan allows, e.g is spouse getting insurance a qualifying event or is separation a qualifying event for health insurance?

You will be required to provide documentary proof of the qualifying event. For example, if you have recently married and want to drop your coverage in order to go on your spouse’s plan, you have 30 days to do so. You will need to join your spouse’s plan first. Then you will need to show your plan administrator or HR department proof that you have been added to that plan. Your spouse would need to show their HR proof of the marriage. The same 30 days applies for both being added to your spouse’s plan and dropping your own. So don’t delay!

The change must be related to your qualifying event. So, what is a qualifying event to drop health insurance? For example, if you have just had a new baby, that is a qualifying event to add the baby to the plan. You must take active steps to do so. It does not happen automatically no matter how many people in HR are aware of the birth. But the birth of a baby is not a qualifying event for medical expenses to drop your coverage, or to add a spouse or older child, unless your plan document specifically says it is. Your HR department can help you with what qualifying events are allowed by your plan, but you are not required to take their word for it. The law requires that you be given a copy of the plan document or a summary thereof on request.

Changes related to a qualifying event only allow dropping coverage in favor of another plan and proof of that other plan is needed. In order to drop coverage outright, you will need to wait for the plan’s open enrollment period. ONLY at that time can you drop coverage without providing proof of other employer or marketplace coverage. So you’ll want to be very careful that you don’t exceed what you can afford – “the plan costs too much – I want to drop it” is not a qualifying event under the law. The ONLY time you can drop coverage for that reason is during open enrollment.

In the event that your plan is not subject to Section 125 regulations (this will only be the case if your ONLY option for premium deductions is post-tax – very, very few plans nowadays are not subject to Section 125 regulations), then the law does not prohibit you from making changes outside of a qualifying event or open enrollment, but the plan document might. If Section 125 does not apply, the employer still needs to follow the requirements of the plan document – if the plan document does not allow for mid-plan-year drops, then you do not have the option. The employer is still required by law to follow the plan document.

Can You Switch to a Spouse’s Policy During Open Enrollment?

Switching to a spouse’s health insurance policy during an open enrollment period is easy. You can just cancel your current coverage and enroll in your spouse’s policy. Generally, the system employers send you through have  a box you can check to opt out. It may ask follow-up questions. If you need more help, you can also call your insurance representative for any further questions about health insurance options. If you want to reduce group health insurance costs, switching during open enrollment means you can start saving right away.
Most companies run their coverage with the calendar year. Enrollment opens in the fall for coverage beginning January 1. If you’re switching from group health insurance to a qualified small employer health reimbursement arrangement or an individual coverage HRA, your spouse must be enrolled in a family policy before they can participate in the HRA on a tax-free basis.

Case Studies: Navigating Insurance Coverage and Employer Policies

Case Study 1: Employee Premium Contributions

Sarah works for a company that deducts her health insurance premium contributions pre-tax from her paycheck. She wants to drop her insurance coverage, but her employer informs her that she cannot do so outside of the open enrollment period or a qualifying life event.

This is because Sarah’s company is enrolled in a Section 125 Plan, which restricts changes to coverage during certain periods. Sarah realizes that if her premiums are deducted pre-tax, Section 125 applies.

Case Study 2: Changing Insurance Companies

John is unhappy with the health insurance plan offered by his employer. He wants to switch to a different insurance company or coverage. However, he learns that federal law limits when an employee can make changes to their coverage or options.

In most cases, changes can only be made within 30 days of a qualifying event or during the open enrollment period. John realizes that he needs to wait for the next open enrollment period to make any changes to his insurance.

Case Study 3: Non-Compliant Health Care Plans

Lisa’s employer has offices in multiple states, including Hawaii. She discovers that her employer’s health care plan does not conform to the stricter rules of Hawaii’s state laws.

Lisa becomes concerned about the compliance of her individual health insurance and decides to contact her state offices for clarification. She wants to ensure that her insurance meets the minimum standards required by the state.

Case Study 4: Switching to Spouse’s Policy

Michael wants to switch to his spouse’s health insurance policy during the open enrollment period. He learns that this is possible by canceling his current coverage and enrolling in his spouse’s policy.

Michael finds it convenient that most companies run their coverage based on the calendar year, and the open enrollment period typically opens in the fall for coverage starting on January 1.