change of job position

[Guest mmcgee]

I have a situation that an employee's spouse changed from a manager position to a non-manager position. With that change, she had a decrease in salary, but did not change from full-time to part-time. However, the spouse's employer does not pay for health insurance premiums for non-managers whereas they did pay for managers' premiums. Does that qualify as a change of status that would allow the spouse to drop her coverage and the employee to add his spouse to the health insurance of his employer?

[papogi]

It can be argued that the spouse should be able to drop coverage at her employer based on the cost changes provisions in Section 125. This would be an increase resulting from an action taken by the spouse (the IRS says that switching between full-time and part-time is an example, but it is not limited to this). If the change is significant, certainly if it is over 20%, the spouse's employer may allow the spouse to drop coverage, if they allow mid-year changes to their elections. They are not required to allow mid-year changes to 125 elections, but most 125 plans do allow them.

Unfortunately, the only way the spouse can come on your employee's coverage is if the underlying health plan (not the 125 plan) has a provision allowing spouses on in circumstances like this. If it does, Section 125 has no provision which would allow any increased payroll deductions related to the addition of the spouse to be taken pre-tax. They would have to be taken post-tax, assuming the underlying plan allows the change. Section 125 requires that there be a change in eligibility on the spouse's part in order to come on the employee's plan. Since there is no eligibility change, just a cost change, 125 can't help here as far as adding coverage.

Keep in mind that HIPAA can't help, either. A voluntary drop of coverage by the spouse is not a HIPAA event which could force your employee to allow the spouse on the coverage.