Health Insurance

[Guest Julie]

I work for an employer who has both a pre-tax health insurance plan as well as a Sec. 125 health spending account. I recently tried to cancel my health insurance and was told that since the plan is a Sec. 125 plan, and the premiums are pre-tax, I cannot cancel my coverage unless there's a qualifying event. I didn't realize that "qualifying events" applied to regular health insurance. Here's what our HR department says:

"When premiums are paid on a pre-tax basis through the Flexible Spending Account, you may only terminate coverage on you and\or your dependents at the beginning of a plan year (January 1) by completing a new enrollment\change form to decline coverage. Mid-year changes are only allowed when certain qualifying events such as a change in employment or family status occur and the change request is received by HR within 30 days of the qualifying event date. If you pay premiums on an after-tax basis, you may terminate coverage at any time."

Is our HR department interpreting the cancelling of health insurance right???

[Guest b2kates]

short answer, correct, only at open enrollment or due to a qualifying event can the health insurance purchased through a 125 plan be cancelled.

[jpod]

If you give us your reason for wishing to cancel your coverage we may be able to help you determine whether or not you have a "change in status" that would allow you to cancel.

[namealreadyinuse]

They are correct, although it is not explained very well. Your premiums are going through a POP and that is subject to the same rules as the FSA as far as changes in elections. Bottom line, you need a qualifying change in family status under the IRS rules and the change needs to be consistent with that change.

[jmor99]

Julie: You can cancel your health insurance--but you cannot stop the payroll deduction for it (for reasons given above.)

[Don Levit]

jmor:

If the deductions have to continue, how could the insurer cancel the coverage?

Don Levit

[jsb]

Don,

The payroll deductions must continue, but they don't have to be sent to the carrier.

Julie,

I agree with the other posters that there must be a qualifying event of some sort to permit you to make a change under your plan, IF your premiums are taken pre-tax. It sounds like there is an option under your plan, so you might want to verify that your deductions are actually being taken pre-tax, and if not, then you might have the flexibility to make a change. You might provide a little more info on the situation to see if one of the crew can help you come up with the justification for a qualifying event.

[Don Levit]

jsb:

Are you saying that, at the beginning of the next plan year, the deductions can be returned to the employee?

Don Levit

[jsb]

Don,

Absolutely not. The money cannot go back to the employee. We have this happen infrequently but the contributions not sent to the carrier become "plan assets", offsetting any payments made by the employer for administrative expenses. Practically speaking, most folks keep the coverage if they are having to pay for it anyway. We run into more issues with dependent ineligibility where 125 changes are (must be!) prospective but the loss of actual coverage is retrospective. Resulting credit from insurance carrier offsets carrier debit items and we "true up" periodically, which usually results in the carrier sending us a small check a couple of times a year.