Jump to content

Health Plan Change: Switching Coverage


Guest kp

Recommended Posts

Company has self-insured health plan administered by large insurance co. and under a cafeteria plan. Company's subsidiary wants a bare bones catastrophic coverage plan to start mid-year. May EEs of that sub switch to the new plan (does not sound like a change in family status)? What if the new plan is not a part of the cafeteria plan? What considerations?

Link to comment
Share on other sites

If a new plan option is offered at mid-year it is logical to have an open enrollment so that EEs cna make a selection. Otherwise, why install a new plan design? If an employee gasins or loses eiligibility under one or more of the company's health plans, a mid-year election change may be made.

You asked, what if the new plkan is not part of the cafeteria plan? My question is, why would it not be? Also, what advantage is there for not having it be part of the cafeteria plan? Don't forget, one of the major financial breaks to the company in a cafeteria plan is no Social Security match on EE contributions.

By the way, your large insurance company TPA should be able to provide guidance with all of your questions.

Link to comment
Share on other sites

It did not sound logical to not permit an employee to enroll in a new plan mid-year. Is it because it's a new plan? If an EE wants to switch mid-year from an existing health plan to another existing health plan, we do not allow this outside of the open enrollment period. Can you cite authority for your position? Regulations, Code, etc?

Link to comment
Share on other sites

On another issue, an insurer stated that the health plan may no longer offer compensation in lieu of the health plan under new federal law. This sounds like it violates the basic premise of a cafeteria plan. Any idea on what this statement means?

Link to comment
Share on other sites

I can address your first question.

We've got a number of subsidiaries, some of which have their own benefits under their own 125 plans. What you have to be careful of is how the subs are treated relative to nondiscrimination testing. If they fit the tests and are part of your control group, up to a certain point they can still have separate benefits. I'm not too sure what the exact criteria are, but it involves degree of ownership (i.e. wholly owned vs partially publicly traded) by the parent organization and the number of affected employees.

If the sub does go to a cat plan mid-year, the parent is obligated to offer COBRA to terminating participants because the degree of coverage is significantly reduced.

You can do this mid-year - why not? As long as it's affecting the employees of the sub as a group, there's nothing to stop you.

One other caution - if you do this, how will it affect your enrollment with your existing plan? Will it pull a sufficient number of participants out that the plan costs will suddenly skyrocket?

With regard to your other issue, I'd be interested in exactly what that person was talking about, too!

Link to comment
Share on other sites

KP

I have been envolved in making siginificant plan changes in mid-year with prior employers, and under advice from ERISA legal council, we informed that we could allow employees to make changes at that time.

I would ask your insurer where thay are getting their information on not allowing cash in lieu of health benefits. I haven't seen anything regarding this and would be interested my self.

Link to comment
Share on other sites

Guest kchristy

With regard to employers offering compensation in lieu of taking health coverage, keep in mind that insurance companies can set minimum contribution and participation guidelines. They can't rewrite the tax code, but they do have the authority to say how much the employer must contribute towards an employee's coverage.

Underwriters, by my understanding, can exercise some authority over issues like this and choose either to rerate or not write at all a plan that offers people cash in lieu of benefits.

Link to comment
Share on other sites

I am still not comfortable with the idea of permitting a switch from an existing plan to a new plan outside of open enrollment and absent a change in family status. The company currently does not permit switching mid year among its current plans. Why is this different? How flexibly would the IRS interpret this issue? The EE could presumably argue that a new health plan option would inevitably offer some form of coverage or pricing that the existing plans did not offer -- does this make it okay to permit a switch under the cafeteria plan rules? Just because ERs have done it, is it a matter of not getting caught?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...