Effective September 18, 2014, the IRS expanded the mid-year election change rules for Section 125 cafeteria plans to allow employees to drop employer sponsored group health plan coverage during the cafeteria plan year when buying Qualified Health Plan coverage on a Health Insurance Marketplace Exchange ("Marketplace") established under the Affordable Care Act ("ACA") and certain other health coverage in two specific situations.
Health insurance coverage elections currently made under a cafeteria plan may not be revoked or changed during a plan year unless there is a change in status or other special enrollment event that permits a mid-year election change under the cafeteria plan rules.
Revocation Right #1 - Employee's Full-Time Hours Are Reduced.
Previously, an employee could not revoke the group health plan insurance election made under the cafeteria plan if the employee's hours were reduced but the employee remained eligible for coverage under the employer's health plan. Now an employee may drop the employer group health coverage under the cafeteria plan - even if the employee remains eligible for the employer sponsored coverage – if:
- the employee was a full-time employee working, or who was reasonably anticipated to work, 30 hours or more per week;
- the employee's hours are reduced below 30 hours per week, or the employee will reasonably be expected to work less than 30 hours per week going forward; and
- the employee intends to enroll in another health plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month that includes the date employer coverage was revoked.
This election change does not require purchase of coverage from the Marketplace.
For ACA reporting and compliance purposes, if the employer is using a lookback measurement period, the employee may continue to be reported as full-time even when working fewer than 30 hours per week.
Revocation Right #2 – Using Enrollment Periods Through The Marketplace.
The other added event addresses an employee's ability to revoke a cafeteria plan election for the purpose of enrolling in a Qualified Health Plan through a Marketplace. Such a mid-year change may be desired, for example, where an employee is in non-calendar year cafeteria plan and wants to switch to Marketplace coverage without a break in coverage. An employee is now allowed to make an election change during the cafeteria plan year and to enroll in a Qualified Health Plan through the Marketplace if:
- the employee is eligible for a Special Enrollment Period, under the Marketplace rules, or seeks to enroll during a Marketplace open enrollment period; and
- the employee intends to purchase a Qualified Health Plan through a Marketplace with coverage effective no later than the day after the day the revocation of the employer sponsored health coverage is effective.
- These two new election events are permitted but not required. To allow the new permitted election changes a cafeteria plan must be amended to add the new election events by the last day of the plan year for which elections are permitted. To add these elections for a calendar year cafeteria plan for 2014, the amendment must be adopted by December 31, 2015.
- These additional election changes apply only to a cafeteria plan, not a health care Flexible Spending Account (FSA). The first revocation change applies only to coverage that provides minimum essential coverage; stand-alone dental and vision coverages would not qualify. Likewise, these coverages are not provided by the Marketplace and cannot be changed mid-year.
- In determining if an employee intends to purchase minimum essential coverage under another plan or a Qualified Health Plan through a Marketplace, the employer may rely on the reasonable representation of the employee rather than actual proof of purchase. Employers will want to revise cafeteria plan forms, and consider the complexity of plan administration.
- The federal Marketplace (www.healthcare.gov) open enrollment period for 2015 coverage is November 15 – December 15, 2014. Employers with cafeteria plan open enrollment periods that end before December 15 may want to add Revocation Right #2 to allow employees access to the full Marketplace open enrollment period. For ACA purposes, the offer of ACA-compliant coverage is needed to avoid penalties and not the actual election of coverage.