Can You Cancel Health Insurance When it Is Not Open Enrollment?

Can You Cancel Health Insurance When it Is Not Open Enrollment?
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Health insurance can be expensive. Consumers who find a better deal may be tempted to cancel existing coverage in favor of saving money in the long run. Your type of insurance coverage determines whether you may cancel your insurance policy. Employer-sponsored plans require you wait until open enrollment unless you have a qualifying event. Private insurance polices may be canceled at any time according to your insurance documentation.

No Switching Health Insurance Companies With Pre-Tax Insurance

Many employers offer insurance plans under a Section 125 cafeteria plan. Employers set up a cafeteria plan according to IRS regulations, which enable employees to purchase health insurance before taxes are paid. Pre-tax plans lower your total taxable income. When your employer offers a pre-tax health insurance plan, you cannot cancel it before the open enrollment period unless you experience a qualifying event or change in personal status.

What is a Qualifying Event for Employer Sponsored Health Insurance?

The IRS defines what counts as a qualifying event – not your employer. You may change or cancel insurance if you experience a change in marital status, dependent status or employment status. Your employer may change your insurance if presented with a judgment or decree by court order. Other qualifying events include eligibility or loss of Medicare benefits, Family Medical Leave Act coverage or residency if the change affects your eligibility to participate in the program. You must report the change of status within 60 days of the event.

Private Health Insurance Rules

Private health insurance policies are bought outside your employment. These contracts exist between you and your health insurance provider. Private health insurance is not paid out on a pre-tax basis so cancellation is possible outside the open enrollment period. Whether you may cancel your policy depends on the terms you agreed to when you opened the policy.

How to Cancel Health Insurance

For employer-sponsored plans, contact your human resources department to make changes to your health insurance policy. You are required to provide documentation of your change in personal status such as a marriage certificate if you get married, birth certificate if you have a child or divorce decree. For private insurance policies, contact your health insurance provider to cancel your policy. Ask the customer service representative how to cancel your policy. Many insurance companies require cancellation in writing before canceling your policy.

Assessing the Tax Penalty

Beginning in 2014, you are assessed a tax penalty for failing to cover yourself under a health insurance premium. In 2014, the penalty was $95 per person. In 2015, it increased to $325; in 2016, to $695 per adult. Beginning in 2017, the amount is the same as 2016 but adjusted for inflation and is also based on your income. The adjustment was zero in 2017 and 2018. If you are canceling your health insurance, make sure you have another option in place – or face a higher bill at tax time.