Midyear Switch Between PPO and HDHP Options

[Eric Taylor]

Are there changes in status that would permit participants to switch from a PPO option to a HDHP option midyear? I can think of arguments why that might make sense but not sure that they necessarily fit the consistency requirement.

[masteff]

A change in residence such that the participant becomes out of network in the PPO is given as an example in the regs.

If you don't have an HDHP but add one, that would count as a coverage change. Likewise if you had a significant change in cost mid-year (such as if your renewal was mid-year rather than calendar).

I'll leave it to greater minds on whether other status changes would permit a change in plan option.

[Eric Taylor]

Thanks very much. This is very helpful. Just to confirm, I assume you are talking about Example 4 of the Reg. 1.125-4©(4) where they permit a change to the underlying coverage options (i.e., switch from HMO 1 to either an indemnity plan or HMO2) in connection with the transfer?

My understanding is that the change in status rules generally permit changes to the underlying coverage option along the lines of this example to be made in connection with most changes in status. My assumption has been that the same principle likely applies to permit changes in coverage options between a regular plan and a HDHP and is not intended to be limited to changes among an indemnity plan and an HMO but I have not seen any express reference to a HDHP in the regulations thus far.

I can understand that result but am wondering if there is any concern extending this to cases where both options (the regular plan and HDHP) offer identical networks / coverage but just carry different deductibles / premiums, etc. For example, while a change in work location could have a significant impact with respect to regular network benefits under two different coverage options with different networks,etc. (i.e., the existing HMO coverage might not extend to new location and so clearly warrant a change).

Any concern with extending that thinking if the two coverage options--primary plan and HDHP--provide identical benefits. Seems in that case a transfer to a new work site would not necessarily give rise to the need to change arrangements as coverage / benefits available are identical.

Beyond the immediate change in status rule question, I'm also wondering how switches from regular plan to HDHPs midyear works in practice where deductibles change and/or there are potential issues with regular FSAs and HSAs tied to HDHPs. Seems this could create a lot of administrative issues.

Surely this comes up with some frequency. I cannot seem to find any good analysis or discussion though.

[401 Chaos]

I don't have any authority for this but if the coverages under the HDHP and primary plan are the same and the only difference is cost, it would seem to me difficult to argue that the change in status (transfer to a new location) used in that example impacts eligibility for / availability of coverage under a plan in a way that really supports a switch from one option to the other. I guess if maybe there were a significant change in the cost of living generally between the locations you might have an argument but nothing is as clear cut as the example in the regulations where the transfer basically results in loss of coverage.