Jump to content

Mid-year plan change due to birth


jsb

Recommended Posts

Employee elects family HMO coverage. Has a new child mid-year. Cost of plan to the employee does not change as he already has family coverage. As a result of the birth, now wants to change to High Deductible plan because premium is lower.

Some here say changing plans in this case is not consistent since there is no change in cost or coverage. Others say birth is a "free pass" for whatever you want to do. Plan document is generally ambiguous, thus providing no specific guidance.

What's your take on this request? Any cites appreciated. Thanks for your input!

Link to comment
Share on other sites

Some thoughts that may help or just make it harder: a plan is not required to allow a change just because the change is allowable under section 125.

Off the shelf cafeteria plans are usually designed to allow any change that the law allows, but plan administrators still have the authority to interpret plan terms unless the plan says otherwise.

Plan terms matter, not only the 125 plan, but the health insurance plan. However, health insurance plans are subject to mandates, such as HIPAA, that 125 plan are not

Link to comment
Share on other sites

QDROphile is correct, you need to review the 125 plan spd to determine which changes are allowed and which changes are not allowed. However, you may have a bigger issue here, that of what the carrier will allow. Check with the health plan spd/plan documents and with the carrier also. The employee may need to wait till OE.

Link to comment
Share on other sites

I don't think birth is a free pass UNDER THE 125 REGULATIONS, and whatever the plan says or doesn't say you need to interpret it with the limitations in those regulations in mind.

Link to comment
Share on other sites

I don't think birth is a free pass UNDER THE 125 REGULATIONS, and whatever the plan says or doesn't say you need to interpret it with the limitations in those regulations in mind.

With all due respect, I believe you are incorrect. Please provide back-up references to your statements.

To begin with, a change in number of employee's dependents (birth, adoption, or placement for adoption)is a qualifying event that may allow an employee to change their elections mid-year.

Additionally, your statement "and whatever the plan says or doesn't say you need to interpret it with the limitations in those regulations in mind." is also incorrect. While the IRS does not require mid-year election changes, sponsors are allowed to adopt plan provisions that do allow these changes.

Link to comment
Share on other sites

Thanks for the input. We are a big plan (10,000+ primary lives) and there will not be a problem with the carrier. The plan doc is permissive with what's allowed under applicable law. It's the applicable law that is confounding as it does not specifically address this scenario. A similar situation is covered in one of the Q&As, but it concerns a change from PPO to HMO along with a coverage level change from individual to family. The coverage level change (at least to me) is a pretty clear "change in cost" that one could argue satisfies consistency (higher cost is consistent with changing to a lower cost health plan option). But unfortunately I have been unable to find an example on point of a plan change being permissible when the triggering birth does not result in a cost change to the participant.

Given that we seek to be as permissible as the law would allow, would you allow this change?

Link to comment
Share on other sites

First - I am distinctly NOT an expert in cafeteria plans, but I'm trying to increase my knowledge (bit by bit) so this post is very interesting.

The citation provided by Ivena goes on, in (ii), to further specify that the election change must also satisfy the consistency requirements in ©(3) - which I've pasted in below.

I find ©(3)(i) to be a little gray. When it refers to the change in status as one that increases or decreases the number of family members or dependents who "may" benefit from coverage under the plan - I suppose you could read that either way. But since the number of dependents who "may" benefit does, in fact, increase (because there is one more dependent) then it seems reasonable to interpret this as satisfying the consistency requirement. But, I think you could also read it that since the number of dependents was already unlimited, then this unlimited number isn't "increased" by a birth or adoption.

People here who are experienced in this area will probably know - I'd like to think that the IRS would take a reasonably lenient stance on this, and in fact allow the change when there is a birth, but I really don't know.

(3) Consistency rule -

(i) Application to accident or health coverage and group-term life insurance. An election change satisfies the requirements of this paragraph ©(3) with respect to accident or health coverage or group-term life insurance only if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer's plan. A change in status that affects eligibility under an employer's plan includes a change in status that results in an increase or decrease in the number of an employee's family members or dependents who may benefit from coverage under the plan.

Link to comment
Share on other sites

FWIW, it feels to me that they probably can't switch to the High Deductible plan mid-year.

If they were not eligible to enroll in the High Deductible plan before the baby was born (not likely), but now, because of the birth, they are eligible for the High Deductible plan, then yes, that's consistent, and they can switch mid-year. Otherwise, I think they have to wait for the open enrollment period.

I'd be happy to see a cite that shows I am wrong in this analysis, but the consistency requirements make sense, too.

Link to comment
Share on other sites

We are getting all over the board here, feel like we need to focus.

Original question had to do with what events allow for a change of status, specifically if a birth would result in a status change. The answer to this is yes. Next step is to review the spd to see if the employer allows for mid-year changes for a birth. According to jsb, it does. Next step is the carrier, as I and GMK state above, and see if the consistency rule is followed. Again, according to jsb post above, it appears to be met.

Link to comment
Share on other sites

All I said was that the birth of a child is NOT a free pass in the sense that you can make any change you want. You still have to work through the other requirements set forth in the regulation.

Link to comment
Share on other sites

Appreciate the great discussion.

The original question could be restated as: "Does the mid-year addition of a dependent (qualifying status change event) permit an employee to change health plans mid-year even when adding said dependent does not change the cost of existing coverage to the employee?"

What is an election? The pre-tax withholding of a specific dollar amount to pay premiums.

Does the status change allow an election change? Yes

Is the requested election change consistent with the status change?

  • Does the requested election change correspond with the status change event? Yes, if you're talking about proximity in time. Maybe not if you're looking for the status change to be causing some sort of impact on the employee requesting the change.
  • Is the requested election change on account of with the status change event? Maybe yes, if you consider that the birth is prompting the employee to want to change plans. No, if you're looking for there to be some financial or other impact on the current enrollment as the result of the birth. No, if you're considering that the employee will enroll in family coverage under the new plan when they were already enrolled in family coverage before the addition of the new dependent.

On one hand, I'd side with GMK and don't think I'd allow it due to lack of consistency. On the other, I think that 125.4©3(i) is open to interpretation.

According to a chart in the EBIA's 125 manual, the change could be permitted. But like many posts to this forum, EBIA qualifies that their manual is informational, not legal guidance.

The Plan Administrator sides with the EBIA chart, so that's what we'll do.

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...