Spouse released from prison

[SLuskin]

Does anybody have any idea how the regs treat a spouse who has been released from prison? Can the employee add the spouse to the health plan?To the Cafeteria Plan? Did the former inmate "lose" coverage, because the gov't is no longer paying for the medical expenses? Do the health insurance companies have to allow this person on to the plan? What about pre-ex. Medical records would be impossible to obtain. Thanks for any input.

[papogi]

Based on my reading of the regs, this is a loss of coverage (albeit provided by the government), and the spouse should be allowed to enroll into the employee's coverage, per HIPAA provisions. Up to a 12 month pre-ex period would apply, if the underlying plan imposes one. As far as the cafeteria plan, if the plan is written such that a loss of coverage is a status change, then the additional payroll deductions for the spouse should be taken pre-tax, as well. Cafeteria plans are not required to allow any status changes (although most do, as we know), so checking the current wording of the flex plan is the only way to be sure. The spouse might have been in prison, but I think this is really no different than a child losing coverage under SCHIP, for example.

[Jbentz]

If you have a pre-ex clause, I believe that HIPAA regs regard the federal program he is under as credible coverage and that would change any pre-existing time period.

[papogi]

Agreed. It would be considered creditable coverage.

As an aside (and I'm not jabbing Jbentz, because I made the same assumption before I edited my response), since most inmates are male, we assume this spouse is male. Nowhere in SLuskin's post does it clarify gender.

[Jbentz]

You are so right, papogi, my apologies. I should have used "spouse".

[SLuskin]

Thanks for the input.

[Guest pauljose]

On another tangent regarding the cafeteria plan, would the release qualify as a change in status(allowing employee to change election) due to "change in spouse's employment"? Is incarceration considered "employment"?

[papogi]

I think this is essentially a moot point. Even if you could argue that the event is a change in status, the change in election must be consistent with the change in status. An election change comprised of adding the spouse would be consistent. An election change from one PPO to another, or from a high option to a low option, or the like, is not consistent with event, even if it could be argued it is a change in status as well as a HIPAA event (loss of other coverage). Consistency rules apply in all election changes, and changes of status do not give an employee free reign to change every and all elections.

[Guest pauljose]

I understand your point in regards to consistency, papogi.

I was asking to add to my general fund of cafeteria plan knowledge, I should have been more precise.

My question is as follows: An employee has a 125 FSA plan in addition to group medical available to them through their employer. When that employee's spouse is released from incarceration, does that release qualify as a change in the spouse's employment, allowing the employee to make changes in their FSA elections?

[SLuskin]

That is a really interesting question, and one that the participant did not ask me. In prison, the inmates are required to work, and they are paid. The money is put into their commissary accounts. They do not pay taxes on it (average wage is under $1/hr). Still, that may be a stretch. Certainly, if he (accurate use of gender here) were able to obtain employment, the spouse could increase the FSA.

[papogi]

Yes, it is a good question. Even though the pay is low in prison, I would think that inmates are still considered gainfully employed (they work, they receive compensation which they keep), so the spouse adding the former inmate could start or increase her FSA, but not terminate her existing FSA if she had one. I agree it's stretching things, but I think that it follows the intent of the IRS in writing the regulation and would probably hold up in court. Interesting...

[Chaz]

I have a question regarding the opposite situation. The employee's spouse has just been incarcerated for a sentence exceeding two years. The employee currently has family coverage. The state covers an inmate's medical expenses but bills the inmate's private insurer if such insurance exists. Can the employee drop the spouse from coverage? Thanks.

[papogi]

The regs clearly allow someone to come on a group plan if they lose government coverage, but they don't allow the opposite. The change will have to be made at open enrollment. The IRS doesn't want to do anything that makes it easy for government sponsored coverage to replace private coverage.

[Chaz]

The regs clearly allow someone to come on a group plan if they lose government coverage, but they don't allow the opposite. The change will have to be made at open enrollment. The IRS doesn't want to do anything that makes it easy for government sponsored coverage to replace private coverage.

Thanks, that's what I figured. Anyhow, in my particular circumstances, I think the employee will be able to change the coverage because the spouse had a change in "residence" (as it were) to a place outside the service area of the HMO the employee was enrolled in (per 1.125-4©(4) example 4), and thus it is a qualified change in status.

[papogi]

I think you are right. A change should be allowed based on those circumstances.