Background
Under the current section 125 change in status rules, a cafeteria plan may not allow an employee to revoke an election under the group health plan during a period of coverage solely to enroll in a Qualified Health Plan through a Marketplace (an Obamacare "Exchange"). For an individual enrolled through a cafeteria plan in a group health plan with a calendar plan year, the employee may continue his or her coverage under the plan for the remainder of the plan year and then immediately begin coverage under an Exchange plan. However, an individual enrolled through a cafeteria plan in a group health plan with a noncalendar plan year might not be able to synchronize the change in coverage to avoid an overlapping period of coverage or a period without coverage because the open enrollment period rules for Exchanges do not permit the purchase of coverage other than at the Exchange's fall open enrollment.
Also, under current Treasury regulations, a cafeteria plan may allow an employee to revoke an election under a group health plan during a period of coverage and to make a new election that corresponds with special enrollment rights only with respect to enrollment in another group health plan; not to enrollment in an Exchange. However, in the case of an event such as a birth or marriage, it may be more advantageous for some individuals to enroll themselves and their families in an Exchange rather than to add family members to an employer’s group health plan. To permit access to government subsidies and Exchanges in these cases, the new rules permit a group's cafeteria plan to allow a participating employee to revoke an election in order to obtain coverage through an Exchange.
New Guidance
An employer cafeteria plan may now allow an employee to drop coverage under its group health plan (other than a health FSA) provided both of the following conditions are met:
Conditions for revocation due to reduction in hours of service:
- The employee has been in an employment status under which the employee was reasonably expected to average at least 30 hours of service per week and there is a change in that employee’s status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change, even if that reduction does not result in the employee ceasing to be eligible under the group health plan; and
- The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee, and any related individuals who cease coverage due to the revocation, in another plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.
An employer may rely on the reasonable representation of an employee who is reasonably expected to have an average of less than 30 hours of service per week for future periods that the employee (and dependents) have enrolled or intend to enroll in another plan that provides minimum essential coverage for new coverage that is effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.
Conditions for revocation due to enrollment in a Qualified Health Plan:
- The employee is eligible for a Special Enrollment Period to enroll in an Exchange pursuant to guidance issued by the Department of Health and Human Services and any other applicable guidance, or the employee seeks to enroll in an Exchange plan during the Exchange's annual open enrollment period; and
- The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee and any related individuals who cease coverage due to the revocation in an Exchange for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.
An employer may rely on the reasonable representation of an employee who has an enrollment opportunity in an Exchange that the employee and related individuals have enrolled or intend to enroll in such Exchange for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.
Effective Date. Plan Amendment Required.
These new changes are effective on September 18, 2014.
To allow these new permitted election changes, a group's cafeteria plan must be amended to provide for such changes. The amendment must be adopted on or before the last day of the plan year in which the elections are sought, and may be effective retroactively to the first day of that plan year, so long as the employer informs participants of the amendment.
