Qualifying Events - Consistency Rules

[French]

Our employee has single coverage in one of our health plans and contributes on a pre-tax basis. His spouse has employee +1 coverage with her employer. She recently had a baby and will change to family coverage at her employer. Our employee wants to drop his coverage and be covered under his spouse's plan. We have said that dropping his coverage is not consistent with the event - birth of a child. Are we wrong in saying that he cannot drop coverage. I've looked through some of the regs and cannot find anything that specifically agrees or disagrees with our statement. Can someone help.

[Lori Friedman]

I believe you're looking for Reg. Sec. 1.125-4©(2)(ii)

[GBurns]

Read through the examples given in the Treas Regs and see why this change is allowable.

http://www.changeofstatus.com/resources/regs.asp

[KJohnson]

People use (b)(2) example 1 and ©4) example 7 to say that there is "tag along" rule with regard to dependents. For example if you have not covered your spouse and have a child, you can then make an election change for family coverage and cover that spouse in addition to the child. This is consistent with Example 1 and would make sense if the plan only had employee and family coverage. The tricky part comes when a plan has employee, employee plus one and family. Arguably, the employe could elect employee plus one and not elect family and this would be more "consistent" with the event. The IRS however has informally said that a tag-along rule applies in this case and family coverage could also be chosen.

In your case, it would seem that adding the husband to the "other plan" by selecting family coverage would be consistent with the change in status --even if the other Plan had a tier that would cover just the wife and the two kids. Then as far as dropping the husband's coverage in your plan, you would rely on the following from the regs (assuming this is in your document):

(4) Change in coverage under another employer plan. A cafeteria plan

may permit an employee to make a prospective election change that is on

account of and corresponds with a change made under another employer

plan (including a plan of the same employer or of another employer) if--

(i) The other cafeteria plan or qualified benefits plan permits

participants to make an election change that would be permitted under

paragraphs (b) through (g) of this section (disregarding this paragraph

(f)(4)); or

(ii) The cafeteria plan permits participants to make an election for

a period of coverage that is different from the period of coverage under

the other cafeteria plan or qualified benefits plan.

[oriecat]

Maybe I am misunderstanding, but the original question makes it sound like the employee is already double covered (spouse has employee+1 and wants to change to family to add the new baby). If that is so, then there is no change in the employee's coverage and it seems like he shouldn't be able to drop at this time.

[KJohnson]

oriecat you may be right and I misunderstood the question. I had assumed that the employee plus one coverage was for their first child and that they were having their second baby. If the employee plus one was actually double covering the husband, then I think that the change would not correspond to a change under another employer's plan and I would agree with you.

[Lori Friedman]

French, Would you please clear up our confusion about the number of family members? I think we all assumed that the new baby is Child #2.

[oriecat]

Everybody but me, I guess! Probably because our plan is employee + child(ren), so adding another kid wouldn't cause a change to family plan... so I assumed the employee was covered, then adding a kid would move it to family...

[French]

Everyone's input has been very valuable. To answer the question, our employee is not currently covered under his spouse's plan. We've been told that her coverage is employee +1 and yes she is currently covering herself and their first child. I have been looking at the regs and it does seem that we should allow him to drop coverage. Any further comments are welcome.

[oriecat]

Yup, in that case, I agree.

[JDuns]

My only comment would be that your plan terms govern. Just because a change is permitted under the 125 plan rules does not mean that your plan must allow it (unless it is a HIPAA special enrollment right).

I do agree that the change is clearly permissible under the Regs.