Dropping your group plan has many benefits, from easing the administrative burden to preventing the inevitable price creep for group plans. It will save you time, money, and headaches. With customizable health reimbursement arrangements getting better and better each year, you may be ready to make the switch to these tax-advantaged options, but perhaps you’re confused as to where to start. We’re here to help!
How to cancel a group plan and start an HRA
1. Communicate with your employees
Change of any kind can be stressful, especially for long-time employees who have enjoyed their traditional group plan for years. Explaining HRAs and their benefits will help smooth the transition. Equip your employees with as much information as possible as early as possible to understand this new model of benefits and how these changes will affect them. Most likely, they haven’t heard of it before but avoiding any surprises will help them welcome their new benefit.
It’s also important to remind them that once the group plan is cancelled, they’ll have a 60 day Special Enrollment Period to choose a new insurance plan on the individual market. If they wait any longer, they’ll have to wait until open enrollment to choose another plan, and will be left with a scarcer selection of options that meet the requirements (like faith-based plans or short term plans).
2. Read the fine print
Most group health insurance plans are unilateral contracts, meaning that you can cancel a group plan at any time during the year. Some carriers request 30 days’ notice, but that’s not always the case. Occasionally, there are financial penalties for canceling early.
It’s always smart to engage your insurance broker or even call a customer service representative at your insurance provider to make sure you understand the necessary steps to cancel. Some will require an old-fashioned written letter or fax and many won’t accept a simple email as a sufficient way to cancel, meaning you could be on the hook for next month’s premium.
3. Choose an HRA
The two main types of HRA are the qualified small employer HRA and the individual coverage HRA. Take Command Health can help you know which one might work best for your business, but these questions might help you decide for yourself.
How big is your company? QSEHRA is capped at 50 employees; ICHRA can be used in the smallest business (your nanny!) to the largest and those in between.
How much do you want to offer? QSEHRAs have a maximum annual allowance of $5,250 for employees with individual insurance plans ($437.50/mo) and $10,600 for employees with married and family insurance plans ($883.33/mo). No maximum limits with ICHRAs means employers can fully reimburse healthcare costs if they choose You can vary the amounts you offer based on certain criteria (age, family size). ICHRA allows for greater variety across classes while QSEHRA does not.
What type of insurance do your employees have? Employees need to secure their own insurance to participate in each HRA, but the requirements are slightly different. For QSEHRA, the health insurance must meet Minimum Essential Coverage which can be insurance purchased from the marketplace, a spouse’s plan, a parent’s plan, medicare, tricare, or cobra.
ICHRA is more limiting, the insurance must be purchased from the individual market(the metal level insurances) or Medicare Part A +B or Part C , spouse’s plans don’t integrate with ICHRA.
Do you want to include all of your employees or just a few? QSEHRA is available to all full time employees. Part time employees can participate but you must offer the HRA on the same terms
ICHRA classes allow for greater flexibility, however the terms must be the same within each class
Do you have a group plan in place? Do you want to keep it? If yes, QSEHRA is not for you. Employees cannot participate in both a group plan and the HRA. However, this restriction does not apply to life insurance and disability. You can offer some employees ICHRA and some a group plan, however not within the same class
Pro-Tip: If your business currently has a group health plan and wants to change to a QSEHRA, you can cancel the group plan at any time. You don’t have to wait until the end of the year or an enrollment period. This differs from the ICHRA, which cannot be changed during the plan year.
Is ICHRA the plan for you? Here are the next steps you’ll need to take.
If QSEHRA sounds like your jam, here is how to set up a qualified small employer HRA.
In the meantime, don’t hesitate to reach out to our team. We are here to help make the transition and onboarding simple and seamless.