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Thanks but no thanks: When to reject the health insurance plan at work

Did you know that you could tell your employer "no thanks" and buy health insurance on your own for you and your family members? Employees can choose to leave their employer-sponsored group plan in favor of the individual health insurance market. An employer can only force you to take the plan at work if it pays 100 percent of the premiums or if you agreed to take the plan as part of an employment or union agreement.

Five things you should know before you decide to dump your employer's health insurance plan:

  1. You can enroll in an individual health plan only during open enrollment. This includes plans in the state health insurance marketplaces and plans available directly from the best health insurers outside the marketplace. You may qualify for a special enrollment if you experience certain life events such as moving to a new state, have changes in your income, losing your group health coverage, marrying, divorcing or having a baby. But otherwise, you'll have to wait.
  2. If your employer subsidizes your health care premiums, and most do, price shop before you leap. You won't necessarily get better premiums by buying your own plan, but it's possible.
  3. You may be saving money by paying your share of the employer-sponsored plan premiums with pre-tax dollars. If you go out on your own, you can no longer pay with pre-tax dollars.
  4. If you sign up for your employer plan at work, you're stuck with it for a year. Once you opt in during workplace open enrollment, you can't change your mind unless you quit.
  5. If your employer offers coverage that meets "minimum value" standards set by the Affordable Care Act and is deemed "affordable," you can't qualify for a government subsidy on coverage purchased through an exchange, even if your income would qualify you.

When you might want out of your employer's health insurance plan

That said, here are three scenarios where you might want to opt out of the group insurance at work and buy health insurance on your own instead.

Your employer offers you health insurance coverage, but it doesn't contribute to the premiums.

Most, but not all, employers help pay premiums. And the amount they subsidize can vary from employer to employer. If your employer doesn't help you pay your premiums, you might find a better deal by buying an individual health plan.

Your employer offers coverage, but you think it's a lousy plan.

Under the Affordable Care Act, employer-sponsored plans must cover at least 60 percent of medical expenses for a "standard population"; the employee pays 40 percent of their health care expenses through deductibles and co-payments. You plan will state whether it meets this requirement.

Similarly, your boss could be offering you a plan that you think is too expensive "and that you feel as though you can't afford," says Lisa Zamosky, author of "Healthcare, Insurance and You: The Savvy Consumer's Guide." But that doesn't mean you won't get sticker shock in the individual market, too. 

“If you say no to your work-based insurance, you’ll give up whatever financial help your employer offers to cover its cost, and you won’t qualify for premium tax credits for a marketplace plan if your job-based insurance is considered affordable and meets the minimum value requirements under the law,” Zamosky says.

You are about to lose your job or you've lost your job and are offered COBRA

COBRA law gives you the right to continue the plan you had through your work after you leave a job, but your employer no longer has to subsidize any of your premiums. "This is where you could do better on your own," says Cheryl Fish-Parcham, private insurance program director for Families USA, a consumer advocacy group based in Washington, D.C. Besides, if you lose coverage through a job loss, it's considered a "qualifying life event" and you are entitled to a special enrollment period. So, if you lose your job in June, long after the regular open enrollment period has ended, you qualify for a special open enrollment of 60 days.

Your employer's family coverage is too expensive

Work-based coverage is considered "affordable" if the employee’s share of the annual premium for the lowest priced individual plan costs no more than 9.5 percent of annual household income. For that reason, Zamosky says, premiums for your whole family can total more than 9.5 percent of your income, yet you still won’t qualify for tax credits to buy insurance through a health insurance marketplace.

“At that point, it’s a good idea to shop all of your options -- plans offered by your employer and on the private market -- to see where you can get the best coverage for your family at a price you can afford,” Zamosky says. 

Compare health plan benefits before deciding

When choosing a plan on your own, be sure to look carefully at the benefits it offers and whether the health care providers and hospitals you will want to use are part of it, Fish-Parcham advises. Don't make your decision solely on price, she says.

"Factor in all the financial benefits that come with getting insurance at work, including the fact that your employer is helping to cover its cost and that health insurance on the job is a tax-free benefit," Zamosky says. "For most people, the employer-sponsored plan is going to be the best deal." Consider that some employers offer you incentives such as lower premiums for healthy behaviors such as quitting smoking or getting a gym membership. These incentives should be part of your decision-making equation, too.

Note that your employer might have a vested interest in keeping employees on the workplace plan. Under the Affordable Care Act, employers can be penalized if their health insurance is too costly. The smaller the group, the higher its rates may be. If healthy individuals opt out and leave only sicker employees, that will cause the employer-sponsored plan premiums to rise. The government says the coverage is "affordable" when "the employee's share of the annual premium for self-only coverage is no greater than 9.5 percent of annual household income."

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