Dropping Coverage but still paying for it

[oriecat]

On another forum I frequent, there was a question about dropping health coverage, not due to open enrollment or a status, but just because someone didn't want it anymore... a poster replied that at her company people can drop the coverage at any time, but because it is a Section 125 plan, they continue the deductions until open enrollment. I can understand the reasoning there, but that seems really legally problematic to me, and I would like to post back about it, but I can't seem to gather my thoughts properly and I was wondering if anyone here had any thoughts on this practice. Would ERISA have anything to say on employees paying for coverage they aren't receiving? It seems like state law might also come into play for improper deductions. I just don't see how a company could legally take this money (and I assume keep it for themselves since they no longer have premiums to pay?) when the employee isn't getting anything in return. The proper thing to do would be not to allow these employees to drop the coverage at all until open enrollment or a qualifying event, right?

[jmor99]

Few folks realise this but the "use it or lose it" rule applies to allof section 125, which includes the premium conversion portion. Keep in mind that once the employee gives up constructive receipt of their annual election, that money belongs to the employer, not the employee. The employee directs how that money is to be used with the election form. If the employee cancels the coverage, then it's the employer's money. The employee chose not to "use" it therefore lost it. I don't think a state will be able to negate this part of a federal law.