Special Enrollment Deadline Missed - Ineligible Dependent

Can a participant's enrollment be changed if they failed to inform the employer of a dependent's ineligibility during the special enrollment period?  The participant presented a "nonsuit" to the employer that indicates the participant, as of February 2025,  is no longer proceeding with formally adopting a child.  The participant divorced his spouse in 2024 and the ex-spouse is currently receiving COBRA.  Assuming the nonsuit constitutes a qualifying event, the participant did not present the nonsuit to the employer until after the end of the special enrollment period.  The employer has been made aware that the child is ineligible because he/she is no longer a dependent of the participant.  Coverage by the insurer for the now ineligible dependent can be dropped prospectively; however, can the participant's coverage be also be changed from Employee + Dependent to Employee Only given that he no longer has a dependent?  

What about COBRA?  Who should receive the notice?  The participant or the participant's ex-spouse who is proceeding with adopting the child?   

Interesting. I assume the child was placed for adoption with the employee, and that's why they were initially eligible?  And then the employee ultimately did not go forward with the adoption?  I haven't heard of this "nonsuit" concept you raise here.

If that's correct, I would consider this similar to the issues we see with late notifications of divorce.  The employee/dependent have 60 days to notify the plan of the loss of eligibility to preserve the dependent's COBRA rights.  Confirm with the carrier, but generally the loss of coverage will be prospective.  

• More details: https://www.newfront.com/blog/event-divorce-terminate-ex-spouse-2

Slide summary:

2025 Newfront COBRA for Employers Guide

Thank you.  I'm not so concerned about the preservation of the dependent's COBRA rights, but more so the participant's ability to change his coverage tier.  Can he change his coverage to Employee Only if he missed the special enrollment deadline?  In other words, does he have to continue to pay at the coverage level he had prior to the dependent becoming ineligible?

Understood.  I still don't fully understand the facts here with how the loss of eligibility occurred per my note above, but I think I get enough of it to weigh in.

I always advise that an ineligible individual has to be removed from the plan whenever notice is provided, even if notice is provided late. 

I do not advise that an employee has to continue paying the employee-share of the premium for an ineligible individual once removed from the plan.  I view that as an ultra-purist reading of those §125 irrevocable election rules--and perhaps a violation of applicable state wage withholding law.  So I would recommend moving this to the employee-only payment tier once the ineligible dependent is removed.

Note that if I understand the scenario correctly, this isn't a HIPAA special enrollment timing window issue--that applied to the dependent's initial enrollment based on adoption or placement for adoption.  This is a Section 125 cafeteria plan question you're raising on the employee's failure to timely make permitted election change event request based on a loss of dependent eligibility change in status even (presumably set at a 30-day window in the plan terms).

Yes that's correct -not a HIPAA timing window issue but a Section 125 cafeteria plan question.  Thank you Brian!

Brian Gilmore, thank you for helping us learn about health plans.

If you’re willing to help us learn a few points more:

Imagine the health plan’s benefits are the employer’s “self-funded” obligation, with no health insurance contract. Imagine no claim reached any attachment point of a stop-loss insurance contract.

Imagine there was some time in the past when the child was not the participant’s dependent (as the health plan defines the term), but the participant had told the employer/administrator that the child is the participant’s dependent.

Assume the plan paid a claim for a healthcare service the child received, but that service was had when the child was not the participant’s dependent.

May the employer demand that the participant/employee return the amount the employer paid?

If so, are there legal reasons that might influence an employer’s decision-making about whether to demand the participant/employee return the money?

If the employer is not reimbursed and the child was not the participant’s dependent not only for the health plan’s terms but also for Federal income tax purposes, should the employer’s W-2 wage report on its employee’s wage include an amount for the coverage provided when the child was not the participant’s dependent?

And, despite whatever the legal answers might be, do many employers simply make practical business choices?

Yeah for medical there are the ACA prohibition of rescission rules to grapple with.  In short, those do not permit a retroactive termination of coverage unless the employer can show fraud or intentional misrepresentation of a material fact--plus the plan has to provide 30 days' advance written notice.  There are some exceptions (e.g., late divorce notification, COBRA processing delays), but generally employers will avoid attempts to retro term medical in general because in most cases it's not permitted. 

Even where there is an argument the recission is permitted, it's a practical challenge to recover paid claims from an employee.  State wage withholding law probably won't allow repayment through payroll without the employee's authorization, and without sending the employee to collections (always fun for employee relations) there's not a great way to recover when the employee ignores a demand for repayment.

Most often this issue comes up where an employee loses eligibility (e.g., reduction in hours, termination of employment), but the employer mistakenly fails to timely process their termination of active coverage (and offer COBRA).  The ACA prohibition of rescission rules are clear in that scenario that a retro term is not permitted.

• More discussion if you're interested: https://www.newfront.com/blog/terminated-employees-not-terminated-coverage-2

And that's why retirement plan practitioners avoid consulting on healthcare!

Thank you Brian for being the healthcare guru for this forum, when reading a question I can always tell when it will elicit a Brian answer.

I advise employers to (i) require employees to provide documentation that a individual that the employee wishes to enroll in the plan meets the eligibility requirements and (ii) state in the SPD and in enrollment materials that the plan will consider enrolling an ineligible dependent as constituting fraud and misrepresentation.  The second part may be a slightly risky way to avoid the ACA's prohibition on rescissions but, at the very least, will give employees second thoughts about engaging in hijinks or shenanigans.