Under the new IRS regulations, an employee may change cafeteria plan elections for accident or health coverage or group-term life insurance coverage if:
(b) the employee's election to change coverage is consistent with the "change in status."
However, if an employee wants to change his/her elections for other types of coverage during a plan year, such as dependent care coverage, the old "change in family status" rules still apply.
The new IRS regulations also incorporate special enrollment rules under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") with elections to change accident or health coverage under a cafeteria plan. The new IRS regulations also permit an employee to change his/her accident or health coverage elections under a cafeteria plan pursuant to a judgment, order, decree, or Medicare or Medicaid entitlement.
I. Elections to Change Coverage as a Result of a "Change in Status"
Under the new IRS regulations, a "change in status" will occur upon a change in:
- Legal Marital Status;
- Number of Dependents;
- Employment Status;
- Work Schedule;
- Residence or Worksite; or
- Unmarried Dependent Status.
Legal Marital Status
Events which may cause an employee's marital status to change include marriage, death of a spouse, divorce, legal separation or annulment.
Number of Dependents
Events which may cause a change in the number of dependents include the birth, adoption, placement for adoption or death of a dependent.
Employment Status
Events which may cause a change in employment status include termination or commencement of employment by an employee, an employee's spouse or an employee's dependent.
Work Schedule
A change in work schedule may occur if the hours of employment of an employee, an employee's spouse or an employee's dependent are increased or reduced because of a change to either part-time or full-time employment, a strike or lockout, or commencement or return from an unpaid leave of absence.
Residence or Worksite
A change in residence or worksite may occur if the residence or place of work of an employee, an employee's spouse or an employee's dependent changes.
Unmarried Dependent Status
A change in the status of an unmarried dependent may occur when a dependent reaches a certain age, student status or any other similar circumstance which is set forth in the plan under which the employee receives coverage.
Once a "change in status" occurs, an employee may be permitted to change his/her coverage elections under a cafeteria plan if the changes in coverage are consistent with the "change in status."
B. Consistency RequirementAn employee's election to change accident or health coverage under a cafeteria plan will be consistent with the "change in status" if:
(b) the employee's election to change his/her accident or health coverage corresponds with such gain or loss of coverage.
Under the first part of the consistency requirement, an employee, an employee's spouse or an employee's dependent will gain (or lose) eligibility for coverage under a plan as a result of a "change in status" if such individual becomes eligible (or ineligible) to participate in the plan.
For example, an employer may maintain a cafeteria plan under which an employee may elect either employee-only coverage or family coverage. If an employee elects employee-only coverage but adopts a child during the year, a "change in status" will occur upon the adoption of the child. If the employee elects to change his/her coverage under the cafeteria plan from employee-only coverage to family coverage, the consistency requirement will be satisfied because the child became eligible upon his/her adoption by the employee and the employee's election of family coverage corresponds with the child becoming eligible for coverage.
2. Group-Term Life Insurance
A similar methodology is followed if an employee wants to change his/her group-term life insurance coverage under a cafeteria plan: a "change in status" must occur and the consistency requirement must be satisfied. However, the new IRS regulations impose additional restrictions on how an employee may change his/her group-term life insurance coverage under a cafeteria plan.
For example, if a "change in status" occurs because of a marriage, birth, adoption or placement for adoption, an employee only is permitted to increase his/her amount of group-term life insurance coverage. On the other hand, if a "change in status" occurs because of a divorce, legal separation, annulment, or death of a spouse or dependent, an employee only is permitted to decrease his/her amount of group-term life insurance coverage.
HIPAA permits an individual to enroll for group health plan coverage during a plan year when certain "HIPAA events" (i.e., the loss of other health coverage or the addition of a spouse or dependent through marriage, birth, adoption or placement for adoption) occur. Similarly, the new IRS regulations permit an employee who participates in a cafeteria plan to change his/her health or accident coverage elections during a plan year if a "HIPAA event" occurs. Thus, if a "HIPAA event" occurs, an employee may change his/her accident or health coverage regardless of whether a "change in status" has occurred or whether the change in coverage satisfies the consistency requirement.
B. Other Events
Under the new IRS regulations, an employee who participates in a cafeteria plan is permitted to change his/her elections for accident or health coverage pursuant to a judgment, decree or order which results from a divorce, legal separation, annulment or change in legal custody. For example, an employee in a cafeteria plan may change his/her election for accident or health coverage pursuant to a qualified medical child support order, as defined under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2. Medicare or Medicaid
The new IRS regulations also permit an employee who participates in a cafeteria plan to change his/her elections for accident or health coverage during a plan year if the employee, the employee's spouse or the employee's dependent becomes entitled to coverage under Medicare or Medicaid.
The new IRS regulations are effective for plan years beginning after December 31, 1998. Thus, there is sufficient time to examine the new IRS regulations and resolve any questions regarding when an employee who participates in a cafeteria plan may elect to change his/her accident or health coverage or group-term life insurance coverage during a plan year.