The IRS recently issued Notice 2014-55, which adds new permitted changes in pre-tax elections to allow employees to revoke an election for medical coverage (i.e., drop employer medical coverage) during the cafeteria plan year for one of the following reasons:
- To enroll in another medical plan that provides minimum essential coverage if the employee’s hours reduce below 30 per week, even if eligibility is not lost under the employer’s plan;
- To enroll in a plan through the Health Insurance Marketplace if eligible for a Marketplace special enrollment period (SEP); or
- For non-calendar year plans, to enroll in a plan through Health insurance Marketplace during the annual enrollment period for coverage effective January 1.
The cafeteria plan may rely on “reasonable representation” from the employee that he or she has enrolled or intends to enroll in other coverage. If dropping employer coverage due to reduction in hours, the new plan coverage effective date must be no later than the first day of the second month following the month in which the employer’s coverage is dropped. If enrolling in the Health Insurance Marketplace, the new plan coverage effective date must begin no later than the day immediately following the last day of the dropped employer coverage.
The reduction in hours was included because an employee may have been determined to be full-time using the look-back measurement method, is currently in a stability period, and remains eligible for employer coverage even though hours have reduced during the stability period. However, if an employee’s hours are reduced but eligibility for coverage is not lost, this does not create a HIPAA special enrollment to join another employer’s plan during the year.
The new permitted elections changes apply only to medical plan revocations and do not allow changes to health care FSA or other plan elections.
If you wish for your cafeteria plan to adopt the new permitted changes in election, your plan document must be amended on or before the last day of the plan year in which you want the new elections allowed. Please contact your cafeteria plan vendor or Keller account team for additional assistance.