What happens if an employee wants to drop out of the company plan and get into the exchange? Seems like an option except the cafeteria plan rules prevent someone from making a mid-year change in their cafeteria plan election. Along comes the IRS with Notice 2014-55. This notice addresses situations in which individuals can change their health coverage elections under a Section 125 cafeteria plan and expands the options available. This is a step toward final rules that should be consistent with this notice, but this guidance provides for immediate remedies.
Generally, a cafeteria plan participant can’t change elections mid-year, with certain specific exceptions that the plan can permit. These exceptions did not include any reference to exchanges until now. Now a plan can provide for revocations in two situations directly related to participation in the exchanges. Specifically, an employee may revoke a cafeteria plan election if:
- The employee has a reduction of hours that will drop them below 30 hours per week average but they still remain eligible for company coverage; or
- The employee wants to drop employer coverage and purchase coverage through the exchange without having a period of either duplicate coverage or no coverage.
This is now permissible so long as:
- The cafeteria plan is not a health FSA; and
- It provides minimum essential coverage.
Note that the revocation cannot be retroactive.
What this means is that if an employee has a change in employment during a stability period that results in a reduction in hours but does not eliminate eligibility for coverage, that employee may elect to revoke the cafeteria plan election and go into the exchange. Also, a cafeteria plan may allow an employee to revoke an election of coverage under a group health if the employee is eligible for special enrollment in an exchange plan OR the he intends to enroll in the exchange during an open enrollment period AND the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee in the exchange.
But it is not automatic. The plan has to be amended to permit these election changes. So if you want to provide the option to revoke participation in the cafeteria plan to allow employees to opt out and get into the exchange, review this notice with your benefit professionals and take appropriate action.