It’s becoming increasingly common for small businesses to drop their group health insurance coverage in favor of reimbursement plans like Health Reimbursement Arrangements (HRAs). If you’ve already elected to offer a group policy in 2017, it might not be too late to change your mind. You’ll just need to make sure you mind the details of your current contract and and get setup to administer your reimbursement plan with benefits software.
Dropping Group Health Insurance Midyear
First and foremost, you’ll need to consult your contract. There may be financial penalties involved in canceling your policy prior to its end date—and these fees vary depending upon the insurance company and policy type.
Second, contact your insurance agent or broker to find out exactly what needs to be done to cancel. Some companies require a written letter to be mailed, while others want a fax. In many cases, email is not sufficient. Not following their instructions to the letter may result in you paying premiums for an additional month postcancellation.
What Will Happen to My Employees’ Healthcare?
Your employees will qualify for a special enrollment period (SEP) because losing group health insurance is classified as a qualifying life event. Other qualifying life events include getting married or divorced, having or adopting a baby, and moving.
It is important to notify your employees that they will have only 60 days after the qualifying event to sign up for coverage. If they miss that window, they will have to wait until the next annual open enrollment period. In addition, if employees go uninsured for more than three consecutive months they could be subject to individual mandate penalties.
Switching to HRAs
Recently, President Obama signed the Small Business Healthcare Relief Act (SBHRA) into law as part of the 21st Century Cures Act. This law creates a new kind of HRA open to qualified small employers (those with fewer than 50 full-time-equivalent employees). Dropping your traditional group health insurance (and instead offering HRAs) has major benefits to both your business and your employees.
- Your insurance rates can never skyrocket again because you fix the amount of the allowance you give to single employees and employees with families. This amount changes only if you want it to.
- Employees get to choose a health policy that works best for themselves and their families.
- Your employees may qualify for subsidies if they fall below the 400 percent poverty threshold and you do not offer them a group health insurance policy.
- You will save time by not managing a group policy. Benefits administration software can take care of HRA plan documents, compliance issues, and any regulation changes for you—which frees you up to focus on your business.
If you follow the correct procedures, you can cancel your group policy midyear and switch to an HRA. Your employees will be able to choose new coverage that fits their needs, you fix your costs, and you gain more time to spend on running your business. Make sure your contract allows cancellation, and contact a trusted advisor for further help.
What questions do you have about dropping your group health insurance? Let us know in the comments below.