Health Insurance Center

I Want To Drop My Insurance Coverage And My Employer Will Not Let Me. Can They Do That?

Article 3 of 5 in COBRA and Health Coverage

In many cases, not only can the employer refuse to allow you to terminate, they must. Federal law limits when an employee may add, subtract, or change coverage or coverage options.

Assuming that you have a traditional health insurance plan, the likelihood is very high that it is subject to Section 125 (of the IRS code) rules. If your share of the premium comes out of your paycheck pre-tax, or if pre-tax is an option even if you did not elect it, then Section 125 applies.

One of the requirements for that pre-tax status is that once you have made your coverage choices, changes can be made only within 30 days of a qualifying event, or during the next open enrollment period. The open enrollment period can be any time of year and is generally tied to the renewal of the policy. The most common times for open enrollment is mid-to-late fall (for changes to be effective January 1) or mid-spring (for changes to be effective July 1).

Qualifying events: Qualifying events include marriage, divorce, birth or adoption of a child, death. Depending on how your plan is worded, it might also include legal separation, moving (or being transferred) out of state, or some other life-changing event, but you will have to check with your HR department to see what your plan allows. You will be required to provide documentary proof of the qualifying event. For example, if you have recently married and want to drop your coverage in order to go on your spouse’s plan, you have 30 days to do so. You will need to join your spouse’s plan first; then you will need to show your plan administrator or HR department proof that you have been added to that plan. The same 30 days applies for both being added to your spouse’s plan and dropping your own, so don’t delay!

The change must be related to your qualifying event. For example, if you have just had a new baby, that is a qualifying event to add the baby to the plan (and you must take active steps to do so; it does not happen automatically no matter how many people in HR are aware of the birth!). But the birth of a baby is not a qualifying event to drop your coverage, or to add a spouse or older child, unless your plan document specifically says it is. (Do not count on your plan document having such a specification – they exist but they are rare. In most cases, only changes directly related to the qualifying event are allowed.) Your HR department can help you with what qualifying events are allowed by your plan but you are not required to take their word for it; the law requires that you be given a copy of the plan document or a summary thereof on request.

But changes related to a qualifying event only allow dropping coverage in favor of another plan and proof of that other plan is needed. In order to drop coverage outright, you will need to wait for the plan’s open enrollment period. ONLY at that time can you drop coverage without providing proof of other coverage. So you’ll want to be very careful that you don’t exceed what you can afford – "the plan costs too much – I want to drop it" is not a qualifying event under the law. The ONLY time you can drop coverage for that reason is during open enrollment.

In the event that your plan is not subject to Section 125 regulations (this will only be the case if your ONLY option for premium deductions is post-tax – very, very few plans nowadays are not subject to Section 125 regulations), then the law does not prohibit you from making changes outside of a qualifying event or open enrollment, but the plan document might. If Section 125 does not apply, the employer still needs to follow the requirements of the plan document – if the plan document does not allow for mid-plan-year drops, then you do not have the option. The employer is still required by law to follow the plan document. If they refuse to allow you to drop coverage, chances are very, very great that they are prohibited from doing so by law.

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