Today, many small employers are canceling group health insurance coverage. And it's not because they don't want to offer employee health benefits. Employers are canceling group health coverage because of cost, participation, and administrative hassle - or simply because their employees can get cheaper and better coverage on the individual health insurance exchanges.
This shift in the health insurance space is happening now, and will only continue to accelerate. For small employers and HR professionals, this brings up both uncertainty and relief.
When an employer cancels group health coverage, employees not only lose their health insurance, but they also lose the tax advantages associated with employer-based premium contributions. This can be hard for employee morale and retention. At least this was the case in the past.
Now, most employees are better off purchasing individual health insurance and receiving reimbursement to cover a portion of their out-of-pocket premium cost. This type of approach is called a health reimbursement arrangement (HRA). As more and more small and medium sized employers cancel group health coverage, this is the emerging way to offer a formal health benefit without the cost and complication of group health coverage.
Here are three steps to cancel group health coverage in 2020 while offering the same (or better) health coverage to employees.
Step 1: Cancel Group Health Coverage
When you cancel your group health coverage, you need to call a customer representative with the insurance company. By calling, an insurance representative can confirm the steps the company must take to successfully cancel the group health insurance policy. For instance, some insurance companies may require that a fax or letter be sent confirming the cancellation. Correspondence via email only may result in the company being obligated to pay for next month’s premium. Your health insurance agent or broker will be able to assist you with the process, however the employer needs to call directly.
Most group health insurance plans are "unilateral contracts". This means that employers can cancel a group health insurance plan at any point during the year. While most carriers “request” 30 days notice, this is not always required.
Tip: When you cancel group health coverage you make all employees covered under the plan eligible for a special enrollment period for individual health insurance. By canceling group health coverage, you are also giving eligible employees access to discounts on individual health insurance (via the premium tax credits).
Step 2: Establish an HRA
Work with your broker and/or an HRA software provider to set up an HRA plan for your organization.
In setting up the HRA, you'll give employees a set monthly amount to spend on their own health insurance policy. Employees can purchase a policy in a state health insurance exchange, or through the private market via a broker, online, etc.
Then, employees can use their employer-funded allowance to be reimbursed for qualified health insurance premiums, up to the amount in their balance. To stay compliant, the plan must be formally administered to meet certain requirements of the IRS, HIPAA, ERISA, and ACA.
Step 3: Implement the HRA
Once you have set up your HRA, there are five easy steps to successfully implement the program:
- Enroll employees
- Educate employees
- Provide resources to help employees select a health plan
- Plan for reimbursements
- Communicate with employees early-on, and frequently
As you can see from this list, besides planning for the administration, implementation is all about educating employees. Educate employees on:
- How an HRA works
- Why the company has decided to offer health benefits in this way (remember, it is better for them too!)
- The benefits of individual health insurance and HRAs such as plan choice, flexibility, and cost-savings
- How to purchase individual health insurance for themselves and their family
- How to request reimbursement and use their HRA portal
These three steps will empower your organization to cancel group health coverage and offer employees better health benefits with defined contribution.