The Internal Revenue Service (IRS) recently issued IRS Notice 2014-55, which expands the current cafeteria plan rules that apply when an employee wants to modify or revoke an election of coverage outside of a plan’s open enrollment period. Under the cafeteria plan rules, an employee’s election must be irrevocable during the plan year, unless the employee experiences a qualifying change in status event which would permit an election change. Qualifying change in status events include a change in marital status, change in number of dependents or a change in employment status that affects the individual’s eligibility to receive benefits under the plan.
Notice 2014-55 added two new situations where a plan may permit an employee to revoke an election outside of the plan’s open enrollment period. An employer may amend its cafeteria plan to permit an employee who’s expected hours of service change from an average of at least 30 hours per week to less than 30 hours per week even if the change does not result in the employee losing coverage under the plan. This mid-year election change is intended to address a situation where an employer that is subject to the employer shared responsibility provisions (also known as the “Play or Pay” provisions) elects to utilize a look-back measurement period to determine an employee’s full-time status and the employee becomes eligible for coverage during an associated stability period. During the stability period an employee would remain eligible for coverage, even if the employee’s hours are reduced and the employee is no longer expected to work on a full-time basis. An employee whose hours are reduced may want to enroll in Marketplace coverage mid-year if they qualify for a subsidy for coverage for themselves or their family.
Notice 2014-55 also permits an employer to amend its cafeteria plan to permit an employee to revoke his or her coverage election if the employee intends to enroll in a Qualified Health Plan through the Marketplace either during a Special Enrollment Period that the employee becomes eligible for, or during the Marketplace’s annual open enrollment period. Under the prior cafeteria plan rules, an employee that became eligible to enroll in Marketplace coverage could not drop coverage outside of the plan’s annual open enrollment because becoming eligible for Marketplace coverage would not cause the employee to lose coverage under the employer plan. The prior cafeteria plan rules would not permit an employee who became eligible to enroll in Marketplace coverage to drop the employer coverage outside of the plan’s open enrollment period, which meant that the employee would either have to carry double coverage for a certain period of time or not enroll in Marketplace coverage. This was an issue for employer plans that have a non-calendar plan year as employees would not be permitted to drop coverage during the Marketplace open enrollment period.
It is important to note that in order to revoke coverage under the employer plan, the employee must represent that he or she has enrolled or intends to enroll in a QHP through the Marketplace. Additionally, Notice 2014-55 does not require that an employer adopt these amendments to its cafeteria plan, but instead permits employers to do so.
ADP TotalSource is in the process of amending its cafeteria plan to permit these types of election changes. We are in the process of updating our qualifying change in status election form to accommodate this type of request. As a result, any worksite employee that is covered through the ADP TotalSource, Inc. Health and Welfare Plan may elect to revoke coverage if they choose to obtain coverage through the Marketplace during the Marketplace open enrollment period which starts November 15 or if they otherwise qualify for a Special Enrollment Period.
For more information on IRS Notice 2014-55, see ADP’s Eye on Washington. For more information on the Marketplace, please visit www.healthcare.gov .