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How to Get Out of Your Employer's Group Health Plan Mid-Year

September 15, 2020
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Employees have two options for getting out of their employer’s group health plan mid-year. IRS Notice 2014-55 outlines two ways employees covered by their employer’s health plan can change their health insurance plan elections during a plan year. Here’s what you need to know about the rules:

Background on the rules

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

  1. The employer’s written plan allows mid-year election changes, and
  2. Any election changes that the plan allows must be permitted under IRS rules. For example, employees can change their elections when they experience certain life events, such as getting married, having or adopting a child, or losing or gaining eligibility to a plan.

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

  1. 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.
  2. An employee wants to stop participating in the employer’s group health plan to instead purchase coverage through the ACA Marketplace or their state exchange. This could be to enroll in an individual health insurance plan during the annual open enrollment period or during a Special Enrollment Period (SEP). To be eligible for an SEP, an employee must have a qualifying life event such as a marriage or divorce, birth or adoption of a child, or loss of employer-based coverage.

Note: These rules apply only to health plans that provide minimum essential coverage. They do not apply to Health FSAs.

What the rule means for employees

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.

What the rule means for employers

For employers, it is important to understand that it is your choice to allow these changes. You (as an employer) are not required to adopt them. If you decide to allow employees to make changes, you will need to amend your plans to allow them.

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 2020, you have until the last day of the 2020 plan year to amend the plan.

Pro Tip:

If you want to allow 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, which will allow all employees to purchase coverage on the Marketplace.

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