In order to avoid paying a penalty come tax time, it is important that you have health insurance. Of course, the insurance will also protect you if you experience an unexpected accident or illness that lands you in the hospital. Should you experience a life change, however, that makes it difficult to continue with your current health insurance policy, you can cancel it.
While you can cancel your health insurance at any time, you won't be able to select a new plan outside of the open enrollment period unless you meet certain "qualifying" reasons.
How Pre-tax Plans Work
Certain types of benefits reduce taxable income and taxes for participants who choose them from a menu during an annual enrollment period. These so-called cafeteria benefits include medical, dental, dependent care and health care flexible spending accounts and life insurance. For the health insurance plans, you pay your share of the premium with pre-tax dollars, which reduces the amount on which the IRS taxes you. Even if you waive the opportunity for these benefits, the fact that you are offered a cafeteria plan subjects you to the IRS rules.
When Changes Can Be Made
Under the IRS codes, you can change your benefits annually only during an open enrollment period. Outside of open enrollment, the only way changes can be made are when employees are hired, when they leave the company or if they have a “qualifying” change in their lives. If you have a qualified reason for a change during the year, you have 30 days to make a change. If you miss the deadline, you have to wait for the annual open enrollment. Because of these time limits to make changes, it is important to review your confirmation statement after enrolling each year to make sure you are in the correct plans and all your dependents are included.
Changes Allowed Outside Open Enrollment
There are several “qualifying” reasons to make plan changes outside of open enrollment. They include changes to your legal marital status, including marriage, death of spouse, legal separation and divorce or annulment. A few additional reasons are changes in your dependents through birth and death or adoption, or an eligible dependent (such as a young adult) losing or gaining other coverage. Also if there is a move by you or your spouse; a change in your spouse’s benefits; and changes in your or your spouse’s employment status, such as going part-time, quitting or being laid-off, you'll also be eligible to make changes to your plan. The change you are making must be tied to the qualified reason. For example, moving your residence alone isn’t a reason to change medical or dental insurance plans; only if your old plans are not available in the new area would you qualify to make a plan change.
Changes Not Allowed Outside Open Enrollment
Parents of high school seniors often don’t think during annual enrollment about whether their plan choice makes sense with college approaching. If you are in Los Angeles and covered by a California plan, your child going to college in Boston or Colorado can be an issue. However, your child going to an out-of-area college doesn’t allow for your family to change plans. Changes also aren't allowed if you buy insurance outside of your employer's plan or your spouse's or have a change in a dependent who is not a tax dependent, such as a parent, domestic partner, or child of a domestic partner. If your plan allows it, you can add a domestic partner and the child during annual enrollments, not between.
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