by Lin­da Rowings

irs_stoplightOn Sep­tem­ber 18, 2014, the Inter­nal Rev­enue Ser­vice (IRS) issued Notice 2014–55 which allows employ­ers to amend their Sec­tion 125 plans to rec­og­nize sev­er­al new change in sta­tus events.

Open Enroll­ment in the Health Insur­ance Marketplace

Pri­or to this new notice, an oppor­tu­ni­ty to enroll in the health insur­ance Mar­ket­place (or “exchange”) was not con­sid­ered a change in sta­tus event. This made it dif­fi­cult for employ­ees in non-cal­en­dar year plans to move between a group health plan and the Mar­ket­place since Mar­ket­place cov­er­age gen­er­al­ly oper­ates on a cal­en­dar year.

Effec­tive imme­di­ate­ly, an employ­er may treat open enroll­ment for Mar­ket­place cov­er­age as a change in sta­tus event, and allow an employ­ee and oth­er cov­ered depen­dents to drop group med­ical cov­er­age mid-year to enroll in a Mar­ket­place plan. Mar­ket­place cov­er­age must begin on the day after cov­er­age under the employ­er’s plan ends.

This change in cov­er­age under the employ­er’s plan may only relate to drop­ping med­ical cov­er­age — an employ­ee may not change his or her health flex­i­ble spend­ing account (HFSA) con­tri­bu­tions, den­tal cov­er­age, or vision cov­er­age because Mar­ket­place cov­er­age is being elect­ed. The employ­er may rely on the employ­ee’s state­ment that the indi­vid­u­als drop­ping cov­er­age are mov­ing to Mar­ket­place cov­er­age — the employ­er does not need to obtain proof that Mar­ket­place cov­er­age was put into place.

Spe­cial Enroll­ment in the Health Insur­ance Marketplace

Pri­or to this notice, spe­cial enroll­ment in the health insur­ance Mar­ket­place was not con­sid­ered a change in sta­tus event. This meant that an employ­ee who expe­ri­enced a spe­cial enroll­ment event (such as mar­riage, birth, or adop­tion) might be able to enroll the new fam­i­ly mem­ber in Mar­ket­place cov­er­age mid-year but could not move oth­er fam­i­ly mem­bers to Mar­ket­place cov­er­age. Effec­tive imme­di­ate­ly, an employ­er may treat spe­cial enroll­ment in Mar­ket­place cov­er­age as a change in sta­tus event, and allow an employ­ee and oth­er cov­ered depen­dents to drop group med­ical cov­er­age mid-year to enroll in a Mar­ket­place plan. Mar­ket­place cov­er­age must begin on the day after cov­er­age under the employ­er’s plan ends.

This change may only relate to drop­ping med­ical cov­er­age — an employ­ee may not change his or her HFSA con­tri­bu­tions, den­tal cov­er­age, or vision cov­er­age because Mar­ket­place cov­er­age is being elected.

The employ­er may rely on the employ­ee’s state­ment that the indi­vid­u­als drop­ping cov­er­age are mov­ing to Mar­ket­place cov­er­age — the employ­er does not need to obtain proof that Mar­ket­place cov­er­age was put into place.

Revo­ca­tion Due to Reduc­tion in Hours of Service

The third new per­mit­ted change in sta­tus event is designed to address issues that may arise if the employ­er choos­es to mea­sure hours using the look­back (mea­sure­ment and sta­bil­i­ty peri­ods) method of deter­min­ing hours for pur­pos­es of meet­ing the employ­er-shared respon­si­bil­i­ty require­ments. In this sit­u­a­tion, to avoid employ­er-shared respon­si­bil­i­ty penal­ties, the employ­er must offer the employ­ee cov­er­age through­out the fol­low­ing sta­bil­i­ty peri­od if the employ­ee aver­aged 30 or more hours per week dur­ing the mea­sure­ment peri­od, even if the employ­ee’s hours are reduced below 30 hours per week. Main­tain­ing the same cov­er­age despite low­er income may cause a finan­cial hard­ship to the employee.

Under the new change in sta­tus event, if the employ­ee remains eli­gi­ble for group med­ical cov­er­age, even though he or she is now work­ing few­er than 30 hours per week, the employ­ee may revoke the group med­ical cov­er­age elec­tion mid-year to enroll him­self or her­self (and any cov­ered depen­dents) in either Mar­ket­place or oth­er employ­er-pro­vid­ed cov­er­age. The employ­ee may not dis­con­tin­ue all med­ical cov­er­age, and the new cov­er­age must pro­vide min­i­mum essen­tial cov­er­age. The employ­ee may not change any elec­tion of den­tal or vision cov­er­age or any HFSA elec­tion. The new cov­er­age must be effec­tive no lat­er than the first day of the sec­ond month fol­low­ing the month that includes the date the orig­i­nal cov­er­age is discontinued.

The employ­er may rely on the employ­ee’s state­ment that the indi­vid­u­als drop­ping cov­er­age are mov­ing to Mar­ket­place or oth­er min­i­mum essen­tial cov­er­age — the employ­er does not need to obtain proof that this cov­er­age was put into place.

An employ­er may choose to add any, all or none of these new change in sta­tus events under its Sec­tion 125 plan. The Sec­tion 125 plan must be amend­ed to include any new change in sta­tus event by the end of the 2015 plan year.

An employ­er that choos­es to rec­og­nize the new change in sta­tus events may begin admin­is­ter­ing its plan to include them imme­di­ate­ly. This means, for exam­ple, that a non-cal­en­dar year plan could allow employ­ees to dis­con­tin­ue employ­er-pro­vid­ed cov­er­age and enroll in the Mar­ket­place for 2015. Keep in mind that while the employ­ee and depen­dents may enroll in Mar­ket­place cov­er­age, a pre­mi­um tax cred­it will not be avail­able while the per­son remains eli­gi­ble for min­i­mum val­ue, afford­able (based on the cost of self-only) cov­er­age offered by the employer.

If the employ­er choos­es to include any new change in sta­tus events, that deci­sion should be com­mu­ni­cat­ed to employ­ees prompt­ly, even though the actu­al plan amend­ment is not need­ed immediately.

For more infor­ma­tion about PPACA pro­vi­sions and how they impact your group health plan, request UBA’s deci­sion guides.

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