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Small Business Employee Benefits and HR Blog

How to Help a Company Cancel Group Health Insurance

Today, many small businesses are canceling group health insurance coverage due to cost, participation and administrative hassle.  When a business cancels its group health insurance policy, the employees not only lose their health insurance, but they also lose the tax advantages associated with employer-based premium contributions.

Here are are three ways to help businesses that cancel group health insurance due to cost, participation or administrative hassle:How to Cancel A Group Health Insurance Plan

  1. Establish a Defined Contribution Health Plan
  2. Setup a Premium Reimbursement Arrangement (PRA)
  3. Connect with a Private Health Exchange

How to Cancel a Group Health Insurance Plan

When a company cancels its health insurance plan, it needs to call a customer representative with the insurance company.  By calling, an insurance representative can confirm the steps the company must take to successfully cancel the group health insurance 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 employer being obligated to pay for next month’s premium.

1. Establish a Defined Contribution Health Plan

Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Rather than paying the costs to provide a specific group health plan benefit (a "defined benefit"), employers can fix their costs on a monthly basis by establishing a defined contribution health plan.

Key features include:

  1. No Minimum Contribution Requirements
  2. No Minimum Participation Requirements

2. Setup a Premium Reimbursement Arrangement (PRA)

Premium Reimbursement Arrangements allow employees to reimburse themselves for out-of-pocket health insurance costs tax-free. This saves employees 20-40% in taxes on health insurance costs. Businesses not currently offering health benefits may consider increasing employee wages in an effort to help key employees with their individual health insurance costs. The problem is that the business and the employees are paying thousands of dollars in taxes every month unnecessarily. This is because W-2 employees cannot take a tax deduction for individual insurance without a PRA!

Key features include:

  1. Employees typically save 20-40% on their health insurance costs
  2. Businesses save 7.65% on every dollar in FICA and FUTA

3. Connect with a Private Health Exchange

A private health exchange is a health insurance exchange run by a private company. Health plans and carriers in a private exchange must meet certain criteria defined by the exchange management.  Private exchanges often include online eligibility verification, and mechanisms for allowing employers who connect their employees with exchanges to offer defined contributions

Key features include:

  1. Choice of multiple individual health plans and insurance companies 
  2. Portability of individual health insurance policies
An HRA can help you fix your costs.

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