HIPAA Special Enrollment

[PhilB]

I've been reading EBIA's Cafeteria Plans manual. In the Participant Elections section, the manual makes reference to the IRS "tag-along rule" which would seemingly allow an employee to enroll eligible but previously unenrolled preexisting dependents in a cafeteria plan when there are certain qualifying status changes. This seems to be a direct contrast to HIPAA's Special Enrollment Rule, which would not allow you to enroll eligible but previously unenrolled preexisting dependents. So, which rule governs in the SPD and administration of the plan?

[papogi]

HIPAA sees only marriage as an event which allows an employee to add "other" dependents, and the underlying health plan must be at least this generous. The plan may be more generous and allow pre-existing dependents onto the plan when only one is in a Special Enrollment period, but the plan should have this provision in the plan doc since it is not required by law.

The Section 125 "tag along" rule only addresses entry into the cafeteria plan (the ability to have pre-tax deductions). Section 125 does not require a flex plan to allow any mid-year changes at all. If your flex plan does allow changes (obviously most do), the IRS gives you the list of allowable changes that won’t compromise the pre-tax feature of the benefit. The IRS says that you can add pre-existing eligible dependents to the plan when only one goes through a HIPAA event or a status change, but consistency rules still apply. Assume your underlying plan has a provision which allows this (most probably don't). The IRS now says it is no problem to add pre-existing eligible dependents onto the flex plan along with the Special Enrollment dependent and take pre-tax deductions for all of the dependents. Without this statement, only the HIPAA-affected dependent could come on at that point. That's how I read it.

The IRS also says that you can add pre-existing dependents to the plan when only one has a status change, although consistency rules still apply. Since consistency rules still apply, this seems to take us back to before the IRS even made that statement. It seems to be an empty statement. The IRS does state that the employee needs to be newly entitled to family coverage. They’re basically saying that if the status change entitles you to what your employer classifies as “family” coverage (payroll deductions can get no greater for more dependents) you may as well cover all your eligible dependents since the payroll deduction would be the same. I can think of almost no situations where this rule would apply (if you apply consistency rules), since there always seems to be an alternate way to get the dependent(s) on the coverage if you meet the consistency rules.

This is a messy question, and I have more thoughts on this than I have room for here. I’ve pondered the wordings of the regs, their preambles, and the IRS examples for some time, and they are not clear-cut in my view. What is certain is that the IRS has said that they are not trying to reinterpret or change HIPAA provisions. With that said, the provision allowing pre-existing dependents onto the plan when only one has gone through a HIPAA event (or status change) should be in the plan doc before you even begin to interpret and apply these rules.

[PhilB]

Our plan currently applies the "tag-along" rule when there are status changes, for exactly the reason you mentioned: If the status change entitles you to what your employer classifies as “family” coverage (payroll deductions can get no greater for more dependents) you may as well cover all your eligible dependents since the payroll deduction would be the same. In other words, the premium is the same, so from a purely pre-tax (though obviously not claim liability) standpoint, there's no change.

We are self-insured, but I have a sense that a fully insured plan would not be so liberal. In any event, it would seem that since we are applying the minimum standard required under HIPAA, the fact that we are more generous does not (currently) pose a problem with the Section 125 regs given the ambiguity of the IRS on this point. Now I'm just not sure how we address it in the SPD, or, indeed, whether we need to address it beyond the standard Special Enrollment language required by HIPAA.

[papogi]

In your SPD, the section that deals with eligibility should have a portion added that states that pre-existing dependents are allowed onto the plan when another dependent goes through a status change. Your current clarifications on eligibility and open enrollment might not address this. It might currently read that you can come on the plan when the employee is hired, or if you go through a HIPAA event, or at open enrollment. This wording is not liberal enough to allow the pre-ex dependents we are talking about. The Section 125 rule only addresses your ability to take pre-tax deductions, and who can be on the flex plan. It does not address the provisions of your underlying plan. I would be sure that your SPD has the language you want.