As background, before 2014, an employee’s election to enroll in his or her employer’s health plan pursuant to a cafeteria plan was irrevocable for the entire plan year, unless the employee incurred an event that affected his or her eligibility for the health plan. The most common events affecting health plan eligibility are marriage, divorce, birth of a child and a change in employment from full-time to part-time.
In 2014, the IRS added two new events that allow employees to cease participation in their employer’s health plan, that is not a health flexible spending arrangement, and that provides minimum essential coverage pursuant to the employer’s cafeteria plan. This is allowed in order to purchase insurance under a qualified health plan through a competitive marketplace established under the Affordable Care Act, commonly referred to as an exchange or health insurance marketplace (a “Marketplace”), even if the employee does not have an event that affects his or her health plan eligibility. Employers were permitted to incorporate these new events into plan operation as early as 2014, but an official plan amendment was not required at that time.
The two new events added by the IRS in 2014 generally are as follows:
The first event affects employers who have adopted the look-back measurement period for determining full-time status under the Affordable Care Act. Generally, this means that an employee who averages 30 or more hours of service weekly in the prior 12 month measurement period is considered a full-time employee, and eligible for health care coverage, in the following 12 month period. For example, if an employee satisfies the 30 hours of service requirement in 2014, he or she would be deemed a full-time employee in 2015 and be eligible for health care coverage under the cafeteria plan.
Under the new rule, an employee who is deemed to be full-time (in our example, completed 30 or more hours of service per week in 2014 and is deemed full-time in 2015) can elect to cease participation in his or her employer’s health plan pursuant to the cafeteria plan if his or her hours or service are reduced to 30 hours of service or less per week. Employees that elect to cease participation in their employer’s health plan must represent to their employer that they will enroll in another health plan within two months of ceasing participation in their employer’s plan.
Second, an employee may elect to cease participation in his or her employer’s health plan coverage pursuant to the cafeteria plan when the employee is eligible for either (a) special enrollment in the Marketplace or (b) enrollment during the Marketplace open enrollment period. Similar to the first event described above, an employee that elects to cease participation in his or her employer’s health plan must represent to his or her employer that he or she will enroll in a health plan that provides minimum essential coverage under the Marketplace immediately. This permits an employee to purchase coverage through a Marketplace without it resulting either in a period of duplicate coverage under the employer’s group health plan and the coverage purchased through a Marketplace or in a period of no coverage.
Employers are not required to allow employees to cease participation. Also keep in mind that employees may still elect to cease or change their participation in their employer’s health plan if they have an event that affects their eligibility for health benefits (e.g. marriage, divorce, birth of a child and a change in employment from full-time to part-time)
Employers that have already incorporated these two new events into their cafeteria plan operation have until the last day of the cafeteria plan’s 2015 plan year to amend their cafeteria plan to reflect the new rules.