Jump to content

Health Insurance Changes in Cafeteria Plan


Guest Just Wondering

Recommended Posts

Guest Just Wondering

I am a participant in my employer’s Section 125 Plan and have been deferring the premiums for my family health insurance coverage through the plan. Our open enrollment period for health insurance and the 125 Plan is the month of July.

My daughter married recently and moved to her husband’s health insurance coverage effective September 1st. My spouse and I planned to change to single coverage through our employers since they both pay the single premium. (Both of our employers only offer a single or family plan.) His open enrollment period for health insurance coverage was the month of September with coverage taking effect October 1st. I have requested a change to single health insurance coverage through my employer. The Insurance provider has no problem making the change outside the open enrollment period since I am reducing rather than adding a covered individual.

The Section 125 Administrator states that I cannot make a change in my health insurance premium deferral until the next open enrollment period (next July and $4000 later). They state that my daughter’s marriage is a valid qualifying event. However, they further state that my husband was also covered on the plan so I would still need family coverage since there has been no change in marital status, etc. to trigger a qualifying event.

Is this correct?

Link to comment
Share on other sites

As you describe the coverage packages, just single and family, if you have your wife on your family package as well as your daughter, your daughter getting married and going onto her new husband's coverage would not necessarily allow you to drop your wife from your coverage mid-year. Mid-year changes to your cafeteria election due to changes in family status are only allowed to the extent consistent with the mid-year family status change. It's not like your daughter's mid-year event reduced you from 2 (family) to just 1 (employee-only). Treas Reg § 1.125-4©(3)(iii) (consistency rule). I think the Section 125 Administrator is correct.

Edit was to correct inverted citation.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

You might want to walk it through www.changeofstatus.com and see what you get.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

Unless the Sec. 125 plan prohibits election changes, the changes you describe, your daughter marrying, and as a result of her marriage, both you and your husband only now being eligible for single coverage under your respective employer plans, in my opinion meets the eligibility requirements for singe coverage consistant with a Sec. 125 premium election change.

Since both your and your husband's health insurance plans only have two tiers of coverage, single or family, and your daughter's marriage allows both of you to now choose single coverage not previously available to either of you until her marriage.

In my opinion, even if your plan continues to argue that your daughter's marrage is the only qualified change in status, I believe the IRS regs recognize your husband's newly eligible status for single coverage also qualifies, and I believe, your new eligibelity status for single coverage, entitles you to the election change.

Both, or all three 'events' (# 1 marriage, #2 you becoming newly eligible for single coverage under your employer insurance plan, #3 your husband becoming newly eligible for single coverage under his employer insurance plan, both only consisting of 2 tiers of coverage), are consistent with the election change under Sec. 125.

Link to comment
Share on other sites

Unless the Sec. 125 plan prohibits election changes, the changes you describe, your daughter marrying, and as a result of her marriage, both you and your husband only now being eligible for single coverage under your respective employer plans, in my opinion meets the eligibility requirements for singe coverage consistant with a Sec. 125 premium election change.

Since both your and your husband's health insurance plans only have two tiers of coverage, single or family, and your daughter's marriage allows both of you to now choose single coverage not previously available to either of you until her marriage.

In my opinion, even if your plan continues to argue that your daughter's marrage is the only qualified change in status, I believe the IRS regs recognize your husband's newly eligible status for single coverage also qualifies, and I believe, your new eligibelity status for single coverage, entitles you to the election change.

Both, or all three 'events' (# 1 marriage, #2 you becoming newly eligible for single coverage under your employer insurance plan, #3 your husband becoming newly eligible for single coverage under his employer insurance plan, both only consisting of 2 tiers of coverage), are consistent with the election change under Sec. 125.

Treas Reg § 1.125-4©(3)(iii) includes this remark:

if a dependent dies or ceases to satisfy the eligibility requirements for coverage, the employee's election to cancel accident or health coverage for any other dependent, for the employee, or for the employee's spouse fails to correspond with that change in status.

Treas Reg § 1.125-4©(4), Example 3(ii)

The divorce is a change in status... . A change in the cafeteria plan election to cancel health coverage for [spouse] is consistent with that change in status. However, an election change to cancel [employee's or dependent child's] health coverage does not satisfy the consistency rule under paragraph ©(3)(iii) of this section regarding cancellation of coverage for an employee's other dependents in the event of divorce. Therefore, the cafeteria plan may not permit the [employee] to elect no coverage. However, an election to change to employee-plus-one-dependent health coverage would correspond with the change in status, and thus the cafeteria plan may permit [employee] to elect employee-plus-one-dependent health coverage.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

If there is no corresponding election by the spouse for employee only coverage, the election change would not be consistant. Because both are electing employee only coverage under their respective plans, the election is consistant with the change in status.

Link to comment
Share on other sites

But the employee and spouse could each have elected employee-only coverage during their respective open enrollments, and they may leave the spouse on the employer's coverage as a 'family' configuration despite the dependent daughter marrying and migrating to her new husband's coverage. The only change that is consistent with the daughter's mid-year status change is that her coverage through the employee mid-year ends. A mid-year status change for one person in the covered family does not entitle the employee (or spouse) a complete do-over in their respective elections.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

125 does recognize changes made during a spouse or dependent's annual enrollment period as events to allow a corresponding change to your coverage. If the husband elected single only coverage during his annual enrollment in September, the wife should be allowed to drop him from her coverage.

Link to comment
Share on other sites

Mary C, do you have a citation to a specific Treas Reg provision or IRS ruling for that proposition?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

Guest Just Wondering

Thanks for the discussion thus far on the topic.

My spouse did elect single coverage during his open enrollment period. If I cannot make a change in my Section 125 plan election for the health insurance premiums, I plan to stay on family coverage until my open enrollment period next year. (The deductible on my employer's health plan is less than the options my spouse has available.) My spouse will have double coverage until my next open enrollment period. This seems like quite a waste of resources. Especially if you multiply it by the number of individuals that probably end up in the same situation with differing open enrollment timeframes.

Link to comment
Share on other sites

JustWondering,

Where your husband elected single coverage under his own employer's plan, did your 'family coverage' list and cover just you and your daughter? or did it also list and cover your husband too despite the fact he had his single coverage through his own employer's plan?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

John

I could not understand what you are asking. Could you reword ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

Hi, George,

I'll take another stab at wording it.

JustWondering has 'family' coverage rather than 'single' (those being the only two options), elected in July (annual enrollment). To have the daughter covered, 'family' coverage was the only option, as 'single' coverage would not have done so.

Now the daughter is dropping off the coverage mid-year due to a recognizable change in status.

If for the 'family' coverage JustWondering had listed just herself and her daughter (not also her husband), then the daughter's dropping off mid-year ought to permit JustWondering (if plan provisions allow) to go to 'single' coverage.

However, if JustWondering had listed for the family coverage herself, her daughter and her husband, then the daughter's dropping off would yet leave listed for the coverage both JustWondering and her husband. That would have to continue as family coverage.

So I am curious to know if JustWondering's family coverage had listed her husband as well as her daughter.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

Guest Just Wondering

In response to J Simmons:

The three of us were on a family plan through my employer. Both of our employer's health insurance options only include Single or Family. We've never had the option to cover just parent/child on either plan.

My open enrollment period was July. My daughter was married in July so her coverage ended July 31st. I had to stay on the Family coverage because my husband's open enrollment period did not occur until September. He elected Single Coverage through his employer and it is scheduled to take effect October 1st. Due to the importance of health insurance coverage in case something happens, I told my employer I wanted to make the change to Single Coverage effective November 1st. (Just to make sure he is covered. He still hasn't received his packet or his insurance card and his employer has been known to make an occassional clerical error.)

Link to comment
Share on other sites

Hi, Just Wondering,

So with this added info, your daughter has not been part of the 'family' coverage elected through your employment that took effect 8/1/08. Just you and your husband are.

Thus, the question is simply whether you may drop him (and down to 'single' coverage) if he elects during his open enrollment (September) for single coverage for himself taking effect 10/1/08?

Mary C's response is that you may (and she may yet be able to cite to some legal authority for that proposition). I'm unaware of any legal authority that would allow a cafeteria plan to do so. Even if there is any, your employer's plan does not have to be written to take advantage of that type of mid-year change. If there is legal authority allowing and your employer's plan is written to take advantage of it, then the plan administrator is legally bound to operate the plan as written. However, it is quite possible that the plan terms are written, in this regard, in a way that does not specify one way or the other. Then it is a matter of the plan administrator's interpretation. If that's the case, you already know what the Section 125 Administrator says.

So, to succeed, you'd need some legal authority that permits such a mid-year change in a cafeteria plan (Mary C might be able to supply), the plan would have to include a provision clearly permitting you to drop your husband's coverage under these circumstances.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

Guest Just Wondering

Thank you John, for the clear and concise response. I appreciate your time and effort. If Mary can find the supporting reference, I'll check the exact wording in our Plan. If not, I guess it's just unfortunate that my spouse's enrollment period for health coverage comes so quickly after mine that he'll have double coverage (creating unnecessary expense) until next July. Why do I get the feeling the insurance companies helped write the Plan 125 parameters? :rolleyes:

Link to comment
Share on other sites

The cafeteria plan regs contain an example that supports the proposition that one spouse's change of coverage under an employer health plan permits an election change under a cafe plan of the other spouse. In that example, 2 spouses each have single coverage, and one chooses, at open enrollment, to cancel coverage, thus permitting the other spouse to change to family coverage (on a prospective basis) under the health plan covered by the cafeteria plan. (Treas. Reg. Section 1.125-4(f)(6), Ex. 2. Note that Reg. Section 1.125-4 is not superceded by the new proposed regs.)

Link to comment
Share on other sites

Larry, do you read that example that allows a mid-year addition to also permit a mid-year drop?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

Yes, I do (although I have never experienced such a situation for a client first-hand).

Of course, as noted in Treas Reg. Section 1.125-4(a), a cafeteria plan document is controllling, and is not required to allow election changes which might be permitted by the regs, so my response is accompanied by a caveat that plan provisions are controlling and must be reviewed.

Treas. Reg. Section 1.125-4 covers permitted election changes: "an employee [may] revoke an election during a period of coverage and [may] make a new election . . . as provided in paragraphs (b) through (g) . . ." (Treas Reg. Section 1.125-4(a).) Assuming the document so provides, there is no indication in the -4 regs that the only elections permitted by law are those which add coverage rather than reduce it. Treas. Reg. Section 1.125-4(f), which specifically describes coverage changes, does not contain any such limitation, nor does -4(f)(4) dealing with coverage changes under another employer plan. The only real limitation I can see is language requiring that the cafe plan change "correspond" to the coverage change in the other plan (Treas. Reg. Section 1/125-4(f)(4)), and adding an uncovered spouse or eliminating a covered spouse are both instances that seem to fit within that language.

The -4 regs permit an election to reduce coverage in other situations, as well: due to significant cost increases (-4(f)(2)(ii)) and due to a significant curtailment of coverage (-4(f)(3)).

Link to comment
Share on other sites

This is from the August 2008 Electronic Code of Federal Regulatios (on the internet):

(4) Change in coverage under another employer plan. A cafeteria plan may permit an employee to make a prospective election change that is on account of and corresponds with a change made under another employer plan (including a plan of the same employer or of another employer) if --

(i) the other cafeteria plan or qualified benefits plan permits participants to make an election change that would be permitted under paragraphs (b) through (g) of theis section (disregarding this paragraph (f)(4));

(ii) the cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the other cafeteria plan or qualified benefits plan.

Since the plan of her spouse's employer permits the spouse to make an election for a period of coverage that is different from her period of coverage, her situation would fit this permitted change in coverage. Of course, the plan does not have to honor any of the changes listed in the regs, but if they do, this one is permitted.

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...