Many people might decide to cancel their health insurance plan for several reasons, such as they started a new job or are now eligible for the company’s better health coverage plans. Generally, there is no proscription against the plan or insured members canceling their health insurance policy or participating in a health service plan.
According to the laws, you are legally obliged to maintain your health insurance coverage as a part of medical support order from a divorce case or child support. Still, other than such an order, you can cancel your health coverage at any time.
We all know that it is strictly an option to get health insurance. However, you can face some penalties or consequences for canceling health insurance coverage instead of replacing it with another coverage plan. If you choose to opt-out of a health plan, you may have to pay a fine when you file for your income taxes.
If you want to know more ways to cancel your plan and what is the best time to drop your health insurance without penalty, read this article in detail.
Is There Any Adverse Consequence in Canceling Your Private Health Insurance?
When you drop your health coverage with any thought, you might face some drawbacks, like if you cancel the plan, you cannot get your entire premium back. In some cases, you just pay your unused premiums. You have to understand that insurance cancellation is not retroactive, and you have to pay for the insurance you buy before you cancel.
A famous penalty that you can face by dropping your coverage will trigger the federal tax penalty. According to the Affordable Care Act Law, it is not suitable to cancel your health insurance because you won’t be able to replace or reinstate it until the next enrollment duration, which does not start until November.
If you are thinking of canceling your insurance now, you won’t receive any insurance coverage or reimbursement for medical expenses.
🡺 READ MORE: Is there a Penalty if Married Couples file for Separate Health Insurance?
Considerations for Dropping Health Insurance Plan
If you are going to drop your health insurance, you must consider some critical situations to avoid the tax penalty.
When you cancel your coverage, you will not be able to enroll until the next annual open enrollment period unless you are qualified for a special enrollment period. It is important to note that it does not count as a qualifying life event if you voluntarily drop your health coverage.
You have to pay a tax penalty if you are not enrolled in health insurance coverage for over a year. You have to pay the penalty for the months you don’t have coverage, as the tax penalty for 2019 is the same as it was in 2018, but it may increase in 2020.
If you didn’t have coverage in 2019, you would pay higher such as 5% of your yearly household income or $348 per child under 18 and $695 per person for the year.
If you want to get rid of tax penalties, you have to maintain active health coverage; the insurance card is not generally the proof of your insurance plan. You will not have active coverage if you are paying your premiums.
- As soon as 14 days have passed from the day you cancel your health insurance plan, the insurance company starts collecting premiums for this final 2-week period of insurance.
If you do not obtain a supplement plan or short-term insurance coverage, your financial exposure as compared to the full cost of any incurred medical expenses due to injury will also be subject to the tax penalty.