How to get out of your employer's group health plan mid-year

About 156 million Americans participate in their employer’s group health plan. While employer-sponsored health insurance is popular, there are many reasons you may not choose to enroll, like if the plan’s premiums and out-of-pocket medical expenses are too high, your preferred health insurance providers are out-of-network, or your spouse’s health plan already covers you.

However, if your current health plan is employer-sponsored, the IRS allows you to drop the plan mid-year under certain circumstances. In this blog, we’ll go over how to cancel your group health insurance coverage during the plan year and your options to enroll in a new policy.

Is your employer offering you a health reimbursement arrangement (HRA)? Learn how they work in our complete guide

How can you drop your group plan coverage mid-year?

If your health insurance premiums aren’t paid for by your wages on a pre-tax basis, you can cancel your group plan coverage anytime. However, if your premium payments use pre-tax money, your group plan is considered a Section 125 plan or cafeteria plan.

Therefore, an eligible person can only change or cancel their current health insurance plan in specific situations.

According to the IRS, the allowed “change in election” life events¹ are:

• Changes in marital status, dependents (or dependent eligibility), employment, or residence.
• Major changes to your plan’s cost or covered services.
• Changes made to your employer’s benefits package (i.e., the addition of an HRA)
• Loss of other group health insurance coverage (i.e., plans sponsored by the government or an educational institution.
• Health Insurance Portability and Accountability Act (HIPAA) special enrollment rights.
• Judgments, decrees, or orders (i.e., resulting from a divorce, separation, or annulment).
• Eligibility for Medicare or Medicaid

Besides the HIPAA special enrollment rights, individual employers can determine what mid-year changes active employees can make and how much notice is needed to make them. Your benefit’s plan documents and summary plan description (SPD) will outline these details in advance.

In 2014, the IRS expanded how you can cancel your group health insurance coverage if you have a cafeteria plan. The following two situations only apply if your plan isn’t a health flexible spending account (FSA) and provides minimum essential coverage (MEC).

IRS Notice 2014-55² allows employees to revoke their plan elections if:

1. An employee’s hours are reduced to fewer than an average of 30 hours per week, and they remain eligible for the employer’s health plan coverage. The new policy must provide MEC and have an effective date of no later than the first day of the second month following the date the original group health coverage was revoked.
2. An employee is eligible for a special enrollment period or the annual open enrollment period and intends to enroll in a qualified health plan through the marketplace. They must enroll in a new plan immediately following the last day the original group coverage was revoked.

If you have a qualifying life event and trigger a special enrollment period, you'll typically have a 60-day window following the event to enroll in a new marketplace plan. If you miss this period of time, you’ll have to wait until open enrollment, which could result in a gap in health coverage.

What are your health insurance options once you drop your group plan coverage?

If you aren’t enrolling in Medicare, joining a spouse’s health plan, or participating in a new employer’s group plan, you can purchase your own individual health insurance policy. Individual plans, both single or family coverage, are available on public exchanges, like the federal health insurance marketplace or state-based exchange, or a private exchange.

All health plans on public exchanges must have an actuarial value of at least 60%, otherwise known as a bronze-level plan of the metal tiers of health coverage. They must also cover the ten essential health benefits, which include services like prescription drugs, mental health services, preventive medical care, chronic disease management, and laboratory health services.

Not only are public exchanges convenient because you can compare, shop, and enroll in a plan all on one site, but you can also find out if you’re eligible for cost savings through subsidies, like premium tax credits, to lower the cost of your monthly premiums and help control your medical bills.

With a private exchange, you can buy a policy directly from a health insurer or through a broker. Private exchanges and brokers may offer more policy choices and a personalized shopping experience if you have specific medical care needs or several questions. However, you can only receive subsidies through marketplace plans.

Whichever exchange you choose, once you experience your life event, reach out to your HR department or benefits specialist before you drop your group health coverage so they know about the change. Also, confirm with your health insurer that the cancellation date of your current coverage is on or after the date your new policy begins.

Conclusion

Participating in a group health plan isn’t the best option for everyone. If you want to leave your current plan, you have a few options. While the easiest way is to wait for open enrollment period to return, you can enroll in a new plan mid-year with a special enrollment period if you experience a qualifying life event. This way, you’ll prevent a gap in coverage and be able to choose the health insurance plan that works best for you and your family.

This article was originally published on January 27, 2015. It was last updated on March 3, 2023.

1. http://www.irs.gov/pub/irs-regs/td8921.pdf
2. http://www.irs.gov/pub/irs-drop/n-14-55.pdf