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Open Enrollment on a Self-Funded Plan


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5 minutes ago, Peter Gulia said:

An “enrollment” period might be unnecessary if getting the health plan’s coverage requires no participant contribution and otherwise involves no choice.

The question is, someone wants to change to a "better" plan.  The old administrators didn't allow it based on anti-selection (if someone was taking the cheapest plan, got sick and moved to the better Plan it obviously had a negative impact). 

So I guess the question is now if a participant has to be given the opportunity, at least once per year, to elect different coverage under the Plan.  Or can they continue with the old administrator's policy

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Just as many BenefitsLink mavens use Read The Fabulous Document as a reminder or rhetoric, that idea too applies for a health plan.

What does this health plan’s written plan provide for when, or even whether, a participant may choose a different coverage?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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2 minutes ago, Peter Gulia said:

Just as many BenefitsLink mavens use Read The Fabulous Document as a reminder or rhetoric, that idea too applies for a health plan.

What does this health plan’s written plan provide for when, or even whether, a participant may choose a different coverage?

We are taking over the Plan right now.  I don't think the document specifically says anything, it's just been the administrative policy from what I've been told.

I guess the question more is, do the participants have to be given an opportunity to change their coverage or is that policy (assuming it is in the document) is legally allowed?

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I'm assuming employees pay the employee-share of the premium for this health plan on a pre-tax basis through the Section 125 cafeteria plan.  The Section 125 rules require that a cafeteria plan year be 12 months (in some cases shorter for a short plan year, but never longer).  Employees need to have the opportunity to change their election prior to the start of each plan year, which is what we would normally call open enrollment.

You can use a passive enrollment approach where the elections are essentially evergreen unless the employee elects to change them.  But you can't lock an employee into their cafeteria plan election for a period beyond 12 months in any scenario.  The fact that the underlying coverage option here is grandfathered for ACA purposes is irrelevant for these purposes.

Here are the relevant cites:

Prop. Treas. Reg. §1.125-1(d):

(d) Plan year requirements.

(1) Twelve consecutive months. The plan year must be specified in the cafeteria plan. The plan year of a cafeteria plan must be twelve consecutive months, unless a short plan year is allowed under this paragraph (d). A plan year is permitted to begin on any day of any calendar month and must end on the preceding day in the immediately following year (for example, a plan year that begins on October 15, 2007, must end on October 14, 2008). A calendar year plan year is a period of twelve consecutive months beginning on January 1 and ending on December 31 of the same calendar year. A plan year specified in the cafeteria plan is effective for the first plan year of a cafeteria plan and for all subsequent plan years, unless changed as provided in paragraph (d)(2) of this section.

Prop. Treas. Reg. §1.125-2(a):

(a) Rules relating to making and revoking elections.

(1) Elections in general. A plan is not a cafeteria plan unless the plan provides in writing that employees are permitted to make elections among the permitted taxable benefits and qualified benefits offered through the plan for the plan year (and grace period, if applicable). All elections must be irrevocable by the date described in paragraph (a)(2) of this section except as provided in paragraph (a)(4) of this section. An election is not irrevocable if, after the earlier of the dates specified in paragraph (a)(2) of this section, employees have the right to revoke their elections of qualified benefits and instead receive the taxable benefits for such period, without regard to whether the employees actually revoke their elections.

(2) Timing of elections. In order for employees to exclude qualified benefits from employees' gross income, benefit elections in a cafeteria plan must be made before the earlier of—

(i) The date when taxable benefits are currently available; or

(ii) The first day of the plan year (or other coverage period).

 

Here's some more info on the passive enrollment option:

https://www.newfront.com/blog/passive-enrollments-with-rolling-elections

Election Options at Open Enrollment for Ongoing Eligible Employees

Employers have two options for how to offer election choices at open enrollment for ongoing eligible employees:

  • Affirmative elections; or
  • Passive enrollment (rolling elections).

Affirmative elections are the standard approach where the employee must opt-in to coverage by electing to enroll in the health and welfare plan and pay the associated employee-share of the premium on a pre-tax basis through the Section 125 cafeteria plan.  Employees who take no action will not be enrolled.

Passive enrollments provide that employees’ existing health and welfare plan elections for the current plan year—including to pay the associated employee-share of the premium on a pre-tax basis through the Section 125 cafeteria plan—will automatically roll to the next plan year if the employee takes no action.  Employees wishing to change their health and welfare plan elections (e.g., to waive or change plan options) must affirmatively elect such changes at open enrollment.

Employers utilizing a passive enrollment structure should clearly communicate the rolling election feature to employees at each open enrollment (typically through a ben admin system), including the following content:

  • A general description of the rolling election process;
  • The employee-share of the premium for each plan option;
  • The procedures for declining coverage;
  • The OE deadline to make an alternative election (i.e., to a different pan option other than the current election, or to waive); 
  • A statement that the election (affirmative or rolling) will be irrevocable for the plan year unless the employee experiences a permitted election change event; and
  • A list of the employee’s existing elections.
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Brian Gilmore, we hope you’ll indulge us with a little more of your wide knowledge.

Internal Revenue Code § 125 is a tax-law construct. It relieves from constructive receipt a choice between money wages and one or more qualified benefits. A qualified benefit must be of a kind § 125 describes. Yet, a choice § 125 facilitates might be useless if the benefit is not available to the employee under the terms of a welfare plan, which might include a health plan.

Most plans’ sponsors provide yearly choices not only for § 125’s cash-or-welfare construct but also among health coverages.

But, assuming an absence of a special-enrollment right under ERISA’s part 7, must an ERISA-governed noninsured group health plan allow a participant an opportunity to switch from one health coverage to another health coverage?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I agree there are no OE rules in ERISA.  That's a good point.  So in theory the employee could be prevented from moving to a new health plan option annually.

But virtually all employers have employees contribute the employee-share of the premium through the Section 125 cafeteria plan on a pre-tax basis.  My point was those rules prohibit the employer from requiring the employee to continue to participate in this plan option (via the pre-tax contribution election) year after year.  

So at a minimum the employee is going to be able to revoke that pre-tax contribution (and thereby health plan participation) election annually.  And, assuming this isn't a very strange plan/eligibility arrangement, the employee will have the option to make other alternative plan option elections at that point.

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I don't understand the question. If there are no benefit options and, as Peter Gulia posits as an example, the plan is completely employer funded with no ability to opt out, what is there to choose? But metsfan026's question implies that the employee has the ability to choose a benefit option, which would have to be under the plan. Of course, that choice, whether it involved pre-tax dollars under a cafeteria plan or not, would need to be made under rules provided for in some fashion under the plan, which is typically (really, universally) accomplished during an "open enrollment" period established under the plan. No choices (between benefits or between cash and benefits), no open enrollment. Choices, open enrollment.

Metsfan026, if you're asking whether an employer must provide employees with choices, no, they don't need to.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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