Change in insurance deductible

[Guest cjangelmine]

The company will be changing insurance companies August 1. Due to this change employees will have to pay an additional deductible of $500 for the time period of august through december. Can employees change their section amounts to reflect this new deductible?

[Guest JerseyGirl]

Unfortunately, this is not one the short list of items the IRS uses to allow a change of election. Is the new insurance starting out as a short plan year? I am wondering why the increase in deductible in only for the balance of 2004. If the policy actually runs through July of 2005, they will at least have the opportunity to make changes for the 2005 portion at open enrollment time. With that in mind, perhaps non-essential treatment should be postponed to January if at all possible.

[sloble@crowleyfleck.com]

I don't understand how they are paying their deductible through the cafeteria plan. (You reference "section amounts" but I don't know what this means?) If participants are being reimbursed through the medical reimbursement plan and you are asking whether they can change their elections to reflect the increase in deductible, then the answer is no because no mid year changes are allowed to health FSAs on account of mid-year cost/coverage changes.

[Guest cjangelmine]

The reason for the $500 deductible change for the end of the year is because even though the plan year goes from August 2004 to July 2005, the deductible runs on a calendar year, thus a $500 deductible from August to December and then a new $500 from January on.

I was not sure if the change in insurance was a qualifing reason to change for medical reimbursement -- that is the answer I am searching for. It seems that the answer is no as AshleyL stated it is not a qualifing reason for change.

Thank you for answering my question.

[oriecat]

If your plan year is Aug - July and your cafeteria plan year is calendar, you might want to consider changing your caf plan year to match your ins plan year, so that this type of thing isn't an issue in the future. It is difficult for people to make good FSA estimates if they don't know what their expenses will be each year, and the deductible can be a large portion of that.

[Guest cjangelmine]

Oriecat, if we were to switch the plan year to match the Insurance year, how do you handle the first 7 months of 2005?

[oriecat]

Good question. I am not positive on this, but I would think you would have to do a short plan year. So if you decide you want to get lined up next Aug, then come January and the new year, you could just let the employee's know that you will be having a short plan year, and they should submit new elections based on a 7 month plan year. Then you would have another open enrollment for the start of the new August plan year.

[sloble@crowleyfleck.com]

I assume the premium payment plan year matches the insurance year? Then it might make sense to change the plan year for the medical reimbursement plan to correspond, but I'd be careful about the dependent care plan (if you have one). Those are best to keep track of based on the calendar year due to the $5,000 calendar year limit.

I agree with Oriecat that you would do a short plan year in 2005 and that you should advise the participants in 2004 that the 2005 year will be short and they should make there elections accordingly. There isn't much guidance on how to do this, but Form 5500 has some, also see Prop Reg. 1.125-2 Q/A-7b3 (allowing for a short plan year where the plan year has been changed).

[Guest cjangelmine]

thanks for the replies, your input is valuable. AshleyL makes a good point about the childcare being by the calendar year, and this is part of our plan. any thoughts??