HMO to PPO and Back Again

[Christine Roberts]

A participant in a group health plan via a Sec. 125 cafeteria plan switched (outside of open enrollment - the insurer made an exception for her) from a HMO option to a PPO option, in order to obtain coverage for 'natural childbirth' benefits. After the child was born, the employee added the child as a dependent under the PPO, then asked if she could switch back from the PPO, to the HMO, because the PPO was too expensive to maintain.

My understanding is that the birth of the child created a late enrollment event allowing the employee to add the child to *existing* coverage, but that switching back to the HMO is not permissible under the irrevocable election concept.

Would the answer be different if the employee held off on adding the child as a dependent, unless and untill the employer could guarantee the switch back to the HMO??

[IRC401]

Cafteria plan rules have no (direct( impact on an employee's ability to switch medical coverage. The cafeteria plan rules affect the employee's ability to change the amount of his salary reduction.

So, (HMO and PPO rules permitting) the employee could switch back to the HMO but depending on the cafeteria plan rules and how the plan is written may have to have a salary reduction based on the PPO cost.

[Christine Roberts]

A new salary reduction election *is* required to switch from PPO back to HMO because the HMO costs less. So it goes back to the original question, is this okay to do simultaneously w/adding the dependent child, or is it not *consistent* with the change in status?

[Guest nb]

I could use some clarification.

As I read your post, you've allowed a cafeteria plan election change already without a change in status. Your employee has moved from an HMO to a PPO.

The birth of a child is a change in status that would allow the addition of the child to the existing plan. The addition of a dependent is consistant with the change in status. You don't have any timeframe listed but a newborn wouldn't have a late enrollment issue.

Now, you are wondering if the addition of the child would allow a change back to the HMO because of the higher cost.

If this is accurate, then no I don't think the employee can change back to the HMO and I think you have a 125 compliance issue with the original change from the HMO to the PPO.

[Christine Roberts]

You have the scenario correct and I agree w/your conclusion.