Significant curtailment in health plan coverage

[alexa]

We are significantly redesigning our calendar year health plan effective

10/1/2002 (don't tell me; I've already suggested waiting until 1/1!)

We are eliminating all of our HMO's (50% of our workforce participate in these) and also eliminating our POS and indemnity options. We will be going to 1 national PPO plan with single and family coverage.

There will be greater employee cost sharing as well

question has to do with our 125 plan.

We are allowing employees to opt out of coverage or to keep thier current coverage. Must we allow them to go to single if they currently have married coverage? I assume that they can't go from single to married snce that will cost more?

Also, what would a significant increase in cost be %wise? 20%?

I understand that they cannot change thier health FSA election priro to next year's open enrollment (1/1/2003)

Any insights into this would be greatly appreciated along with very good reasons to wait until 1/1/2003 to implement the new plan.

[papogi]

Easier stuff first. The FSA's cannot change. I've seen 10-20% used to determine "significant." The IRS provides little guidance. I think 20% should be more than safe. Concerning the election changes, the IRS says any significant curtailment of coverage or increase in cost of coverage will allow employees to elect similar coverage or drop coverage if no similar option is available. If you had three plans and were eliminating two of them, employees would have to go into the third plan with no coverage level changes if the plan offered similar coverage. You can only drop coverage if no similar coverage is available. Your complication, if I'm understanding you correctly, is that you are adding PHCS as a completely new option. When an entirely new benefit package is offered, the IRS says employees can make new elections (even if they had originally opted-out). Your dropping coverage tells one thing, but the addition of a new option tells another thing. If you were just adding the PHCS option without dropping coverage, you would need to allow almost any election change. Since you are adding coverage, you can't go against that IRS statement. I think you need to allow the employees to add and drop at will. This will end up being open enrollment in October, then again in December. Administratively, cost-wise, and employee communications-wise this would be easier to just wait a couple more months.

[alexa]

I agree on the waiting part but when senior maangement sees savings in adopting earlier, c'est la vie!

[papogi]

I hear ya'. I should also mention that my recommendations above are based on a flex plan doc that adopts all allowable mid-year changes under 125. A flex plan does not have to allow any mid-year changes, so you can restrict the rules for your employees (as you were proposing to do). You just can't make the rules any more lenient, otherwise you'll violate 125.

[Guest PDDeBoy]

I agree 100% with papogi.