Spousal Premiums & Section 125

[PhilB]

My company imposes an additional "Spousal Premium" on employees who elect medical coverage for working spouses that are employed elsewhere and have insurance coverage available through their own employer, but elect to take coverage under our plan. This is done to protect our plan from being selected against. The spousal premium is taken with pre-tax dollars.

Two cases have arisen that I am seeking opinion on, both dealing with Section 125 issues and mid-year election change requests. Our SPD states that we must be notified within 30 days of a qualified status change event or else the employee must wait until open enrollment to make changes.

In the first case, an employee is paying the spousal premium and did not notify us within 30 days that his spouse is no longer employed. The question is whether we can allow them to discontinue paying the spousal premium prospectively or, because the premiums are taken on a pre-tax basis and they did not notify us within 30 days of the event, do we need to wait until the next plan year begins?

In the second case, an employee called in the last week to tell us her spouse became employed last March and was eligible for coverage in the other employer's health plan. They wanted to drop the spouse from coverage in our health plan and discontinue paying the spousal premium. We can't allow them to drop coverage because it is outside the 30 days stipulated by our plan. But, can we allow them to discontinue paying the spousal premium prospectively if he enrolls in his own employer's plan given our status change guidelines with respect to Section 125?

I love these gray areas. Any input appreciated!

[Sandra Pearce]

In case #1 if your section 125 plan states that the request be made within 30 days of the qualifying event - no change until 125 open enrollment.

In case # 2 I see the same result. No change because request was not made within the 125 plan rules.

I always look at the rules of the underlying plan first. If the request passes that test, then I look at the rules of our 125 plan.

[PhilB]

You boiled that down very nicely Sandra, thank you.

Let me throw one additional variable into the mix. In the second case, the employee's spouse was not employed at the time the employee originally signed up for coverage, so there was no spousal premium and the spouse was covered under our plan.

Now they tell us that 4 months ago he became employed and she wants to drop him from our coverage. We don't allow that because its more than 30 days after the event. But - what about the spousal premium? He's now employed, we won't let him drop our coverage, but he has insurance available through his new employer - So do we start charging the spousal premium prospectively or leave that go until next plan year.

Our plan doesn't reference the premiums per se in the status change events, and it's a bit of a backhand to charge them the additional premium since we can't allow them out. Any opinion?

[Sandra Pearce]

Just need to be sure I understand. The health plan will not allow him to drop coverage unless notification is given within 30 days of the qualifying event, but your 125 plan is written with no stipulation as to notice requirement?

[PhilB]

30 days.

[Sandra Pearce]

If both plans have a 30 day notice requirement, nothing can be done until open enrollment for the 125 plan. The employee is locked in to the coverage and the deduction.