Cafeteria Plans May Allow Revocations Of Health Plan Elections For Additional Reasons

In Notice 2014-55, effective Sept. 18, 2014, the IRS is allowing employers to expand the application of the permitted change rules for health coverage to accommodate certain situations arising from the Patient Protection and Affordable Care Act. The guidance will remain in effect until the IRS changes its cafeteria plan regulations to conform to the new guidance. A cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan that is not a health FSA and that provides minimum essential coverage provided certain conditions are met.

The guidance addresses two situations in which a participant may want to revoke coverage to purchase a qualified health plan (QHP) through an Exchange. The first situation is a participating employee whose hours of service are reduced so that the employee is expected to average less than 30 hours of service per week but for whom the reduction does not affect the eligibility for coverage under the employer’s group health plan. The second situation is an employee participating in an employer’s group health plan who would like to cease coverage under the group health plan and purchase coverage through an Exchange without that resulting either in a period of duplicate coverage under the employer’s group health plan and the coverage purchased through an Exchange or in a period of no coverage.

Reduction in hours of service. A plan can revoke an election of coverage due to a reduction of hours of service if: (1) the employee has been in an employment status under which the employee was reasonably expected to average at least 30 hours of service per week and there is a change in that employee’s status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change, even if that reduction does not result in the employee ceasing to be eligible under the group health plan; and (2) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee, and any related individuals who cease coverage due to the revocation, in another plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

Enrollment in a QHP. A plan can revoke an election of coverage due to enrollment in a QHP if: (1) the employee is eligible for a special enrollment period to enroll in a QHP through an Exchange, or the employee seeks to enroll in a QHP through an Exchange during the Exchange’s annual open enrollment period; and (2) the revocation corresponds to the intended enrollment of the employee and any related individuals who cease coverage due to the revocation in a QHP for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

To allow the new permitted election changes, a cafeteria plan must be amended. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed, and may be effective retroactively to the first day of that plan year, provided that the cafeteria plan operates in accordance with the guidance and the employer informs participants of the amendment, and provided further that a cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015. However, in no event may an election to revoke coverage on a retroactive basis be allowed.

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