Today, many small businesses are canceling group health insurance coverage, and it's not because they don't want to offer employee health benefits. Businesses are canceling group health coverage because of cost, participation and administrative hassle -- or simply because their employees can get cheaper and better coverage on the individual health insurance exchanges.
This shift in small business health insurance is happening now and will only accelerate in years to come.
For small business owners and HR professionals, this brings up both uncertainty and big relief.
When a business cancels group health coverage, employees not only lose their health insurance but also lose the tax advantages associated with employer-based premium contributions. The change can be hard for employee morale and retention. At least, this was the case in the past.
Now, most employees are better off purchasing individual health insurance and receiving reimbursement to cover a portion of their out-of-pocket premium cost. This type of approach is called a defined contribution health benefit. As more and more small and medium-sized businesses cancel group health coverage, this is the emerging way to offer a formal health benefit without the cost and complication of group health coverage.
Here are three steps to cancel group health coverage while offering the same (or better) health coverage to employees.
Step 1: Cancel Group Health Coverage
When you cancel your group health coverage, you need to call a customer representative with the insurance company. An insurance representative can confirm the steps the company must take to successfully cancel the policy. For instance, some insurance companies may require that a fax or letter be sent confirming the cancellation. Correspondence via email only may result in the company's being obligated to pay for next month’s premium. Your health insurance agent or broker will be able to assist you with the process, but you, the policy holder, need to call directly.
Most group health insurance plans are "unilateral contracts." This means that businesses can cancel a group health insurance plan at any point during the year. While most carriers “request” 30 days' notice, this is not always required.
Tip: When you cancel group health coverage, you make all employees covered under the plan eligible for a special enrollment period for individual health insurance. By canceling group health coverage, you are also giving eligible employees access to discounts on individual health insurance (via the premium tax credits).
Step 2: Establish a Defined Contribution Health Plan
Work with your broker or a defined contribution software provider to establish a defined contribution health plan.
In setting up the defined contribution health plan, you'll give employees a set monthly amount to spend on their own health insurance policy. Employees can purchase a policy in a state health insurance exchange, or through the private market via a broker, online, etc.
Then, employees can use their employer-funded allowance to be reimbursed for qualified health insurance premiums, up to the amount in their balance. To stay compliant, the plan must be formally administered to meet certain requirements of the IRS, HIPAA, ERISA and ACA.
For more: How to Set Up a Defined Contribution Health Plan
Step 3: Implement the Defined Contribution Health Plan
Once you have set up your defined contribution plan, there are five steps to successfully implement the program.
This shift in small business health insurance is happening now and will only accelerate in years to come.
For small business owners and HR professionals, this brings up both uncertainty and big relief.
When a business cancels group health coverage, employees not only lose their health insurance but also lose the tax advantages associated with employer-based premium contributions. The change can be hard for employee morale and retention. At least, this was the case in the past.
Now, most employees are better off purchasing individual health insurance and receiving reimbursement to cover a portion of their out-of-pocket premium cost. This type of approach is called a defined contribution health benefit. As more and more small and medium-sized businesses cancel group health coverage, this is the emerging way to offer a formal health benefit without the cost and complication of group health coverage.
Here are three steps to cancel group health coverage while offering the same (or better) health coverage to employees.
Step 1: Cancel Group Health Coverage
When you cancel your group health coverage, you need to call a customer representative with the insurance company. An insurance representative can confirm the steps the company must take to successfully cancel the policy. For instance, some insurance companies may require that a fax or letter be sent confirming the cancellation. Correspondence via email only may result in the company's being obligated to pay for next month’s premium. Your health insurance agent or broker will be able to assist you with the process, but you, the policy holder, need to call directly.
Most group health insurance plans are "unilateral contracts." This means that businesses can cancel a group health insurance plan at any point during the year. While most carriers “request” 30 days' notice, this is not always required.
Tip: When you cancel group health coverage, you make all employees covered under the plan eligible for a special enrollment period for individual health insurance. By canceling group health coverage, you are also giving eligible employees access to discounts on individual health insurance (via the premium tax credits).
Step 2: Establish a Defined Contribution Health Plan
Work with your broker or a defined contribution software provider to establish a defined contribution health plan.
In setting up the defined contribution health plan, you'll give employees a set monthly amount to spend on their own health insurance policy. Employees can purchase a policy in a state health insurance exchange, or through the private market via a broker, online, etc.
Then, employees can use their employer-funded allowance to be reimbursed for qualified health insurance premiums, up to the amount in their balance. To stay compliant, the plan must be formally administered to meet certain requirements of the IRS, HIPAA, ERISA and ACA.
For more: How to Set Up a Defined Contribution Health Plan
Step 3: Implement the Defined Contribution Health Plan
Once you have set up your defined contribution plan, there are five steps to successfully implement the program.
- Enroll employees
- Educate employees
- Provide resources to help employees select a health plan
- Plan for reimbursements
- Communicate with employees early on, and frequently
- How defined contribution healthcare works
- Why the company has decided to offer health benefits in this way (remember, it is better for them, too!)
- The benefits of individual health insurance and defined contribution such as plan choice, flexibility and cost savings
- How to purchase individual health insurance for themselves and their family
- How to request reimbursement and use their defined contribution employee portal
