Can an Employer Cancel Health Insurance?

Employers offer their employees health insurance for a variety of reasons. They may offer it because both employer and employee receive a tax benefit or as means of attracting and retaining talent. Since employers voluntarily offer their employees health insurance, they may terminate their health plans at any time provided certain steps are taken.

What is ERISA?

• The Employee Retirement Income Security Act of 1974 (ERISA) regulates not only retirement plans, but also welfare plans, such as employer-provided health insurance benefits. ERISA sets forth the requirements for how a plan must be established and maintained and also the procedures that must be followed by an employer to properly terminate a plan.

Plan Document Requirement

• ERISA requires that a plan must be maintained pursuant to a written document. Plan fiduciaries must act in accordance with the terms of the plan document. The plan document will include provisions specifying the plan's protocol for amending or terminating the plan and who is authorized to make such a decision. The amendment must be in writing and properly executed in accordance with the terms of the plan document. Accordingly, the first step in terminating an employer's health plan is to review the plan and determine the appropriate steps to do so.

Notice to Employees

• Once the plan fiduciaries have decided to terminate the health plan, in accordance with ERISA, notice must be provided to the employees who participate in the plan. This notice must be sent to employees within 60 days after the fiduciaries decide to adopt the termination of the plan.

COBRA Requirements

• If an employer ceases health insurance benefits, affected participants would not receive COBRA continuation coverage since an employer canceling a health plan is not considered a qualifying event under federal law. However, if the employer cancels health insurance benefits as a result of the employer's terminating the employee or reducing the employee's hours of employment, this would constitute a qualifying event, and then the employer must provide COBRA continuation coverage.