Can You Cancel Health Insurance at Any Time?

Can you cancel health insurance at any time? Not if you have a group health insurance policy through your employer. And in 2022, 54.5% of the U.S. population had employment-based health insurance coverage, according to the U.S. Census Bureau. With an employer-sponsored health insurance plan, you can cancel only during open enrollment or if you have a life status change event. (However, the rules for canceling individual and Marketplace insurance plans are different.)

Small and mid-sized business owners, managers and human resources professionals should be aware of the rules governing health insurance cancellations. They might have to advise their employees and help them if they want to make changes or cancel health insurance. This article discusses:

• When and how employees can cancel their health insurance plans.
• Open enrollment periods.
• Special enrollment periods.
• The possible effects of canceling health insurance.

When can employees cancel their health insurance?

Outside of the open enrollment period, employees may cancel their employer-sponsored group health insurance only if they have a life status change event, sometimes called a qualifying life event (QLE). Time periods allowed for these mid-year changes are called “special enrollment periods.” Life status change events that may entitle employees to cancel their insurance mid-year include:

• Marriage
• Divorce
• Having a baby
• Adopting a child
• Change in spouse’s coverage
• Leaving the company (retiring, getting a new job, getting laid off)
• Becoming eligible for Medicare or Medicaid
• Enrolling in a Marketplace plan
• Leaves of absence
• Significant changes to the plan’s costs or coverage
• Relocating outside of the plan’s coverage area

For some life status change events, special enrollment periods are mandatory, but for others, they are optional. In those cases, it is up to the employer to decide whether its benefits plan will allow employees to change their plans or waive coverage.

Why can’t employees just cancel coverage?

Employer-sponsored group health insurance plans are governed by federal regulations. If the health insurance is provided as part of a cafeteria plan (a “Section 125 plan”), and employees are paying for their coverage using pre-tax dollars, then IRS rules do not allow employees to alter their plan selections mid-year without a valid life status change event.

Navigating health insurance cancellation

If you are an employee who is eligible to cancel your plan, you should follow these steps:

1. Contact your company’s human resources department or whoever is in charge of HR if your company does not have a dedicated HR department. They should help guide you through the waiver process.
2. To avoid a gap in coverage, make sure that the date your new coverage starts will be on or slightly before the date your existing coverage will be end.
3. Fill out all required paperwork and be careful not to miss any deadlines.

What is an open enrollment period?

The open enrollment period is a window of time for employees to compare plans, consider their needs for health services, and change or cancel their employer-sponsored health insurance plans. Open enrollment occurs once a year. The time and length of the period is up to the employer. Typically, for calendar-year benefit plans, open enrollment starts in November and lasts a few weeks.

When employees elect an insurance policy during open enrollment, they are locked into it for the entire plan year, unless they experience a life status change event that has a special enrollment period.

Special enrollment periods: an exception to the rule

If you have a life status event, it may trigger a special enrollment period when you can cancel or make other changes to your health plan. Special enrollment periods for employer-sponsored group plans are generally 30 days long but may be longer based on the event.

The impacts of insurance cancellation

Before you cancel your employer-provided group health insurance plan, you should be aware of what might happen as a result. These are some of the possible consequences of cancellation:

• If there’s a gap between the time that you cancel your current plan and the time that your new plan’s coverage starts, you will be without health coverage, unless you are also covered under someone else’s plan. If you need health care services or medication, or you have a medical emergency, you won’t have insurance, and you will have to pay for everything out of pocket. Getting care for serious conditions could be unaffordable. (The same thing will happen, except for a longer period of time, if you don’t enroll in a new plan at all.) To prevent this problem, make sure that your new coverage starts on or before the end of your old one.
• If your children, spouse, domestic partner, or both are covered under your plan they will be without health insurance coverage if there is a gap between your plans, unless they are also covered by plans of their own.
• A few states impose penalties if you don’t have health insurance year round. If you have a gap between the time your old plan coverage ends and your new plan begins, that could trigger a state penalty.
• For company-sponsored cafeteria plans, there may also be federal penalties for both the employee and employer if the cancellation is not done correctly and violates Section 125 rules.

Expert advice on complex matters

If you are an HR professional, small business owner, or manager, resources you provide might help an employee make the right decisions on matters of the utmost importance. You can get support with TriNet PEO offering. With a TriNet-sponsored plan, you can worry less about compliance and get help in navigating benefits compliance and requirements for COBRA, Affordable Care Act, disability and other filings. TriNet PEO is here to help you.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

This article may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.