One of your employee’s comes to you and asks to cancel their medical insurance in the middle of the year. Seems like a simple request but is it really? Since most employers are deducting health, dental, vision, and/or supplement coverage premiums from employees on a pre-tax basis, the employee’s request must first meet certain requirements before they are eligible to adjust their election mid plan year.
With a valid Section 125 Cafeteria Premium Only Plan in place, the IRS allows employers to withhold premium deductions from employees for certain cover pre-tax. Part of the IRS requirement for taking deductions pre-tax is that employees must experience a qualifying event in order to change their election in the middle of the group’s plan year. The employee must notify their employer of the qualifying event (aka change in status) within 30 days of the event date to be able to adjust their election. If the employee fails to meet the requirements of a qualifying event or does not notify their employer within the allotted time frame, the employee must either wait until they experience another qualifying event or until the next open enrollment period at the group to adjust their election.
A qualifying event is simply explained as any major life event that affects and employee or dependent(s) eligibility for benefits. The following are qualifying events that may allow an employee to change their election mid plan year:
1. Change in legal martial status (i.e marriage, divorce, death of spouse, legal separation, etc.)
2. Change in number of dependents (i.e. birth, adoption, etc)
3. Change in the employment status of employee, spouse, or dependent which results in change in benefits (i.e. termination or start of employment, change in worksite, etc).
5. Dependent ceasing to satisfy eligibility requirements for coverage due to attainment of age, student status, marital status, etc.
6.Change in place of residence of employee, spouse, or dependent where current coverage is not available
7. Judgements, decrees, or orders
8. Change in the coverage of a spouse or dependent under another employer’s plan
9.Open enrollment under the plan of another employer for employee, spouse, or dependent.
10. COBRA qualifying event
11. Loss of coverage under the group health plan of governmental or education institution (i.e SHOP, Medicaid, etc)
12. Entitlement to Medicare or Medicaid
13. Change in Citizenship Status
14. Loss / Gain of coverage in the Marketplace or Exchange by employee, spouse or dependent
Once you have determined if an employee has experienced a qualifying event, you will need to have them complete a new election form (or change form) indicating the reason for their mid-year change and the date of the qualifying event. An employer is not required to keep copies of additional documents as proof of the qualifying event (i.e birth certificate, marriage certificate, etc) but you are required to inspect any necessary documents to validate an appropriate qualifying event has occurred and the date of occurrence. Be sure to indicate on the employee’s updated election/change form the date of the actual qualifying event as this will be the date that the coverage change takes effect with the carrier(s).
Example- Employee gets married on August 5th and wishes to add their new spouse to their coverage. They notify you within the allotted 30 day time frame. The spouse’s new coverage begins under your group plan as of the date of marriage (August 5th) and you will need to adjust any payroll deductions accordingly.
It is important to make sure you (as the employer) have documentation of any employee elections /change in the event that your group experiences an audit or an employee questions any elections/payroll deductions.
Depending on how your current contracts are set up with your insurance carriers will depend on how qualifying event changes affect your premiums with respect to any mid-month changes. Make certain any qualifying event changes are also processed with payroll and their deductions are adjusted accordingly once changes are processed with the insurance carriers.
Should you have any questions about how to properly administer a qualifying event change or if you want to implement a Section 125 Premium Only Plan, please contact our office for assistance.