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Small Business Employee Benefits and HR Blog

Group Health Insurance is Risky

In one week, we release our book The End of Employer-Provided Health Insurance, which discusses the obvious solution to our nation’s employer health insurance woes - employer-funded individual health insurance. The book is available for pre-order on Amazon.com and BarnesandNoble.com.

This article is part of an on-going series of articles on The 10 Reasons Group Health Insurance is Bad for You, Your Family, and Your Company.

The third reason group health insurance is bad for you, your family and your company is because it is risky - your coverage may be canceled at any time without notice.Why Group Health Insurance is Risky

Group Health Insurance is Risky

One of the scariest things about group health insurance is that you do not control the policy. Your employer may cancel the entire plan or change the benefits at any time with little or no notice to you, and there is no COBRA available when the entire plan is canceled.

There are numerous reasons your employer may cancel your coverage:

  • Switching to a new health insurance company. Every year (and sometimes in the middle of the year), thousands of employers switch health insurance companies (and cancel the current coverage) due to the savings it presents to the business, or because the insurance company refused to renew the policy.

  • Failing to meet insurance company requirements. If the health insurance provider audits your plan and finds that your company is out of compliance with the plan terms, such as a 75 percent minimum participation requirement, the insurance company can cancel coverage for the entire company.

  • Failing to make payment. Retroactive termination for nonpayment of premium is permissible, and there is no requirement that a premium be accepted after the original due date.

  • Going out of business. 10 to 12 percent of employers close each year—that’s almost 1 million business closures per year.

Once your current plan is canceled, you lose access to it—there is no COBRA available on a canceled plan. Note also that if you are no longer employed and already on COBRA, and your former employer cancels their entire plan, you also lose your health insurance.

Fortunately, having an employer or former employer cancel your plan is a qualifying event that makes you instantly eligible to purchase individual coverage on your state’s Health Insurance Marketplace at any time, even outside the traditional annual open enrollment period. However, should this happen to you, you will still have to switch to a new health insurance policy and possibly even a new insurance company.

When you have to switch health insurance companies, if you are in the middle of a health issue, it could be financially devastating and/or you could lose contact with your existing medical providers. Specifically:

  1. Your new plan may not cover your current doctor and hospitals. If your new plan does not cover your current medical providers, you will be required to make a choice between (A) transferring to a new provider whom you may not trust or (B) paying out-of-network for your current provider which could be as expensive as having no health insurance at all, and

  2. When you switch plans midyear, your deductibles and out-of-pocket maximums will be reset. Depending on your new plan, this could expose you to up to $12,000 in additional healthcare costs per year.

Transferring to new medical providers who are not familiar with your recent medical history could be dangerous to your health or the health of a loved one.

What’s the Solution?

You should switch to individual health insurance because it’s permanent. With an individual plan, your coverage cannot be canceled as long as you pay your premium.

I will be going through reason number four (group health insurance is limited) tomorrow.

Click here to read all articles in the series.

The Comprehensive Guide to the Small Business HRA