An employee can voluntarily cancel coverage at any time only if the company is not having employee premium contributions deducted pre-tax.
So, generally speaking, no, an employer cannot force an employee to keep their health benefits or insurance.
Purchasing a health insurance policy is strictly optional, according to federal law. However, there are consequences to canceling a current health insurance plan when an employee opts not to replace it with another plan. People choosing to opt out of health plans (self-insure) may have to pay a fine when they file their income taxes.
Also, five states—Massachusetts, New Jersey, Vermont, California and Rhode Island—and the District of Columbia may fine people who do not have medical insurance coverage.
Section 125 health insurance plans, also known as "Cafeteria Plans," are employee benefits programs that take advantage of section 125 of the Internal Revenue Code. These types of plans allow employees to pay for certain qualified expenses (like health insurance premiums) on a pre-tax basis. That is, they're paying with money that isn't taxed. This helps reduce their total taxable income and increases their take-home income. There are two different types of Section 125 plans.
Employers may deduct the employee's portion of the company-sponsored insurance premium directly from said employee's paycheck before taxes are deducted.
Employees may set aside (on a pre-tax basis) a pre-selected amount of money per plan year. The employee can use their FSA funds to pay for qualified out-of-pocket expenses, medical expenses, or dependent care, but not insurance premiums.
Here is an illustration of how a pre-tax benefit works.
Basic Salary Calculation Without Pre-Tax Contributions:
Salary Calculation With Pre-Tax Contributions:
By using pre-tax dollars to pay for the health insurance premium, the employee's taxable income is reduced. In the second example, the employee pays $40 less in taxes ($600 - $560) due to the reduced taxable income and that goes into their take-home pay.
There are a few reasons why an employee might be wondering, "Can you cancel health insurance at any time?"
Can you cancel employer health insurance at any time? We've learned that it depends on a few different factors. Let's say that you can (because it's not a POP or FSA). Now the question remains: how?
The insurance cancellation process through an employer typically involves a few steps, but the exact process can vary depending on the company and the specific insurance plan. Generally, here's how to cancel health insurance through an employer:
If you're looking for the inside scoop on benefits administration and health care, check out more of TriNet's helpful resources. If you're looking for a professional employer organization that can help you with all aspects of benefits and HR administration, consider partnering with TriNet.