Employee got married ...wants out of medical plan

[Moe Howard]

Participant in her employer's fully insured medical plan got married on April 01, 2003. She can be covered on her new husband's employer medical plan.

How many days after her marriage does ERISA/IRS allow her to wait before she must inform her employer that she wants to elect out of her employer's cafeteria plan (medical) because she got married ?

Can anyone direct me to the paragraph of IRC 125 that states the number of days (after marriage date) that she has to inform her employer. It is my understanding that if she waits too long, then she is prohibited from electing out of the plan ....until the next regular enrollment date.

[oriecat]

HIPAA created the special enrollment rights, which must be exercised within 30 days of the status change. The cafeteria plan final regs were then changed to reflect the HIPAA enrollment rights, allowing corresponding changes to the sec 125 plans.

See Treas Reg 1-125-4

http://www.irs.gov/pub/irs-utl/tres_reg-1125-4.pdf

[Guest qualified plan]

I disagree with the implications of oriecat's post.

It is my understanding that HIPAA doesn't adress situations allowing the participant to "opt out" from a health plan. HIPAA only addresses situations which would allow a participant (or his or her dependent) to opt-in to the plan.

Accordingly, the spouse's ability to opt-out of her plan mid-year strictly depends on the extent to which her plan permits such changes, as permitted by the 125 rules. The 125 rules require that the participant's change must correspond with the life event change, but there is no time limit within which she must notify her employer of the change.

[oriecat]

Accordingly, the spouse's ability to opt-out of her plan mid-year strictly depends on the extent to which her plan permits such changes, as permitted by the 125 rules.

Correct. I guess I should have mentioned that, however I just assumed that the plan in question does allow changes, otherwise Moe would have no reason to even ask the question.

Maybe I am stretching, but if HIPAA requires that special enrollment take place within 30 days, and Sec 125 requires that changes to cafeteria plans take place due to HIPAA status changes and be consistent with and due to the status changes, I fail to see how a plan could allow a 125 change much beyond the 30 day limit and still fall under the consistency rule. (Someone wanting to drop coverage now because they went on their new husbands insurance 3 months ago just doesn't seem consistent to me.)

Actually I guess the real question for Moe would be, what does the plan document say regarding changes? My plan document does specify that all changes must be within 30 days of the event.

[Moe Howard]

The SPD says that a participant can elect out during the plan year... if there is a change in family status (marriage). But the SPD gives no time limit as to when the plan must be informed (by the participant) that a change in family status has occured.

I would guess that the SPD's failure to specify a time limit, means that the SPD must be interpreted in favor of the participant who says that she "can elect out at any time she so desires, prior to the next annual open enrollment date".

Unless HIPPA, ERISA, or IRS has a required time limit. (Which was the purpose of my question)

[Guest qualified plan]

Because of the 125 consistency requirement, I would lean closer to imposing a 30 day requirement, rather than the "whatever the participant wants" interpretation. That latter approach could get you in big trouble with the IRS.

Remember, the plan doesn't have to allow any mid-year changes at all (other than HIPAA special enrollments). So, your statement that "the SPD must be interpreted in favor of the participant " is not true.

In any event, you probably should update the SPD to impose a 30 day requirement to avoid this issue in the future.

[Moe Howard]

True that the plan is not required to offer a mid-year opt out. But the plan does offer it, according to the SPD. It's just that the plan requires no time limit.

The fact that the plan requires no time limit for the mid year opt out ....does not negate the fact that the plan allows mid-year opt out.

Under the reasonable man concept .... one could safely assume that a federal judge would agree that she can opt out any time she wants (prior to the next open enrollment).

[oriecat]

I would disagree, Moe, since the plan has to follow its SPD, which doesn't have a time limit, but the plan also has to comply with the Sec 125 regs, which require that the plan only allow changes that comply with the consistency rule.

[Guest llerner]

Regardless of all of the above, carriers usually require that you report the qualifying event within 30 days of the date of the event, ie. date of marriage, date of birth or date acquired new dependent etc. in this case within 30 days of the marriage to cancel your coverage and go on your spouse's coverage should be done within this window to guarantee that you can enroll on his plan. They used to bend a bit on this one but not necessarily. This is definetly a qualifying event, no question according to Final Regs re Change of Status. If the insurer requires 30 days notification to add or drop dependent due to a qualifying event, if you wait any longer there may not be a Change of Status so you may as well notify all within 30 days to keep things as uncomplicated as possible.

[Moe Howard]

Oriecat: What is the IRC consistency rule ? .... and how does the fact that the plan does not require (from participant) a prompt notification that a change in family status has occured, cause the consistency rule to be violated ?

The SPD specifically lists several events that it deems as "change in family status" which the SPD specifically states will allow a participant to opt-out. One of those events specified in the SPD is marriage.

For example: She gets married Apr 1, 2003. The next regular open enrollment is Jan 2004. Suppose she informs the plan on Oct 15, 2003 that she got married (4/1/03) and that she wants to opt out Nov 1, 2003. She continues medical coverage through Oct 31,2003 ... and effective 11/01/3 she is removed from coverage. (She has no right to, nor does she request, retroactive opt-out back to 4/1/03). How does this example violate the IRC 125 consistency rule?

[oriecat]

Moe, if you read the link I posted above that discusses the regulations on status changes, you will see that the consistency rule requires that "the election change is on account of and corresponds with a change in status". It is also stated that "the consistency rule in the final regulations requires that any employee who wishes to decrease or cancel coverage because he or she becomes eligible for coverage under a spouses or dependents plan due to a marital or employment change in status can do so only if he or she actually obtains coverage under that other plan."

So in your example, these are my assumptions and opinions, which can always be wrong.

EE got married 4/1/03. Under HIPAA special enrollment, she would have gone on the spouses coverage 4/1 or 5/1 probably. She then tells you 10/15 that she wants to drop coverage due to her other coverage? It's 5 months later! How does that at all correspond with the previous status change? To correspond with the status change, I believe that both changes would need to be made just about simultaneously. Adding coverage 5/1 and dropping other coverage 11/1 do not correspond in my book.

Now, if the ee did not go on the other coverage 5/1, but say 10/1 or 11/1 because of his open enrollment, then that's a different situation. Also perhaps if the other coverage had a pre-existing condition exclusion period that she was waiting out with dual coverage, that could change things too. I am not sure about that. Again this is all just my opinion.