"Significant" change in the cost of medical insurance

[Guest S WINK]

Does anyone know what the IRS means by "significant cost of coverage changes", found in A-6(B)? The employer I work with is having a 9% increase in medical insurance premiums mid-year (that's mid cafeteria plan year). Is 9% considered significant? The employer would like for their employees to be able to drop or change their current coverage at this time.

[KIP KRAUS]

I've never sean a spicific example as to what the IRS considers a signicant increase. They proably don't know either, but I might consider a 9% increase in an employee's contribution a significant encrease.

If the 9% increase is applied to , say a $50/mo contribution resulting in an additional $54 per year it may not be considered significant to one person ,but could to another.

On the other hand, if the 9% is applied to a $150 contribution resulting in an additional increase of $162 per year such an increase may be significant to everyone.

Unless you can come across some spcific IRS guidelines, I suggest using your best judgement.

[SLuskin]

Even if there is a significant increase, the employee can only revoke the election if he/she prospectively elects similar coverage. If there is no alternative coverage, the employee is stuck with the increase.

[Guest S WINK]

Thank you both for your reply.

I did speak with Harry Beker this morning regarding this employer. He said basically what you both said. The IRS feels that 'significant' is a subjective term, and would depend on the makeup of the employer.

Also, if the employer is going to consider the rate increase significant, the employees have two options: They could keep their current election and accept the increase in premium- At which time the employer would make the corresponding change to the employee's pre-tax deduction. OR They could revoke their current election and receive coverage under another health plan with similar coverage. What I did not realize here is that under this option the new election must still be offered or allowed thru the employer under payroll deduction. This could include individual policies- which I personally would not advise. Mr. Beker said that no other elective adjustments are allowed unless there has been a change in family status.

Anyway, thank you guys for the info. By the way, we are seeing IRS audit activity in Texas.