Tag: midyear change

Spouse’s Open Enrollment – Can I drop my employer’s plan?

On By Michelle Turner, MBA, CEBSIn Cafeteria plansLeave a comment

 

3AAD19E0-733F-4430-B8E4-66E8C19DA078Q: It is open enrollment at my spouse’s employer. If my spouse adds me to their medical plan can I drop my coverage on my employer’s plan, even though it’s outside of our open enrollment?

A: The IRS has rules (26 CFR § 1.125-4 – Permitted election changes) on what changes to pretax elections outside of open enrollment are permissible. It’s these rules which are used to create an employer’s Section 125/Cafeteria plan. An employer may design their plan to be as permissive as the IRS (which in my experience is the norm) but there is no requirement to recognize all of the permitted election changes. So, your employer’s Section 125/Cafeteria plan document is where one should look for which rules are permissible for an employee, based on your employer’s plan design.

That being said, assuming your employer is using an “off the shelf” plan and are as permissive as what the IRS allows, then yes, change in coverage under another employer’s plan is a permissible midyear change event allowing you to decrease or revoke your election if you have elected corresponding coverage under your spouse’s plan.

So assuming your employer’s S.125/Cafeteria plan recognizes “change in coverage under another employer plan” as a permissible mid year change event, if you enroll in medical coverage under your spouses plan during their open enrollment, you may drop your employer’s medical plan. The IRS allows open enrollment under another employer plan/different plan year to be a permissible midyear change event to help resolve “election gridlock”. Otherwise an employee would have to have double coverage or go without coverage for a period of time in order to “synch” up with the plan they want to be enrolled in.

However, keep in mind, the ‘consistency rule’ always applies with any midyear event. Which means the election change must be on account of and corresponds with the change on the other employers plan. e.g. if only enrolling in spouse’s medical, you couldn’t also drop your dental coverage

Cafeteria Plans Do Not Have to Permit Midyear Election Changes

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, HIPAALeave a comment

Changes

Under an Internal Revenue Code Section 125 cafeteria plan, employee’s elections must generally be irrevocable until the beginning of the next plan year. In other words, employees are unable to make a change to their pretax elections made when newly hired or open enrollment unless they experience a permitted election change event (e.g. change in status) allowed under IRS rules (26 CFR § 1.125-4) and the event is recognized by the employers cafeteria plan.

Employers do not have to allow any exceptions to the irrevocable rule for pretax elections1.  However, the IRS does allow employers to design their cafeteria plans to permit employees to change their pretax elections prospectively2 when certain conditions are met.

NOTE: Section 125 permitted election changes are regarding pretax deductions to pay for benefits, not the actual enrollment (or disenrollment) in an insurance plan.

But I thought if an employee got married, or had a baby we had to let them enroll in our plan? 

It is true, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires group medical plans to permit midyear enrollment due to certain events (marriage, birth, adoption, loss of other group coverage etc.). The HIPAA special enrollment requirement is only for medical, it’s not required for excepted benefits, i.e. stand-alone dental, vision or most FSAs. (29 CFR § 2590.701-6)

NOTE: HIPAA is not a directive regarding how benefits are paid, it only mandates that an employee must be allowed to enroll in the medical plan. 

HIPAA special enrollment events are a subset of the Section 125 permitted election change events that provide special rights. Therefore, for practical matters, and to avoid requiring the premium to be taken post-tax, at a minimum, employers generally include HIPAA special enrollment events as permissible events allowing for a change to the pretax election, when designing their cafeteria plan3.

Footnotes:

1The irrevocable pretax election rules do not apply to health savings accounts (HSAs). Employees may prospectively change (start/stop, increase/decrease) their HSA contribution election at any time during the plan year. An employer must allow for changes at least monthly.

2Under HIPAA special enrollment (birth, adoption or placement for adoption) a retroactive pretax election change may be made. Likewise, if the plan has no waiting period (e.g. employees are eligible for coverage as of the first day of employment), employers may allow new employees to make a retroactive pretax election within 30 days of employment. However, if an employer has a waiting period (e.g. first of the month following date of hire, 30 days etc.) the new employee may only make a prospective election. (i.e. the effective date must be a date after the enrollment form was signed and submitted.)

3HIPAA requires group health plans, to give special enrollment opportunities for HIPAA specific events. Carriers are not required to incorporate all the election changes an employer may allow as permitted, by Treasury Regulations in Section 1.125. Therefore, employers with fully insured coverage, who recognize changes outside of what is required by HIPAA should confirm with their insurance carrier the group insurance contract and permissible cafeteria plan midyear change events are consistent.