What is a Qualifying Event?

One of your employee’s comes to you and asks to cancel their medical insurance in the middle of the year. Seems like a simple request but is it really? Since most employers are deducting health, dental, vision, and/or supplement coverage premiums from employees on a pre-tax basis,  the employee’s request must first meet certain requirements before they are eligible to adjust their election mid plan year. 

With a valid Section 125 Cafeteria Premium Only Plan in place, the IRS allows employers to withhold premium deductions from employees for certain cover pre-tax. Part of the IRS requirement for taking deductions pre-tax is that employees must experience a qualifying event in order to change their election in the middle of the group’s plan year. The employee must notify their employer of the qualifying event (aka change in status) within 30 days of the event date to be able to adjust their election. If the employee fails to meet the requirements of a qualifying event or does not notify their employer within the allotted time frame, the employee must either wait until they experience another qualifying event or until the next open enrollment period at the group to adjust their election.

What Is A Qualifying Event?

A qualifying event is simply explained as any major life event that affects and employee or dependent(s) eligibility for benefits. The following are qualifying events that may allow an employee to change their election mid plan year:

1. Change in legal martial status (i.e marriage, divorce, death of spouse, legal separation, etc.)

2. Change in number of dependents (i.e. birth, adoption, etc)

3. Change in the employment status of employee, spouse, or dependent which results in change in benefits (i.e. termination or start of employment, change in worksite, etc).

5. Dependent ceasing to satisfy eligibility requirements for coverage due to attainment of age, student status, marital status, etc.

6.Change in place of residence of employee, spouse, or dependent where current coverage is not available

7. Judgements, decrees, or orders 

8. Change in the coverage of a spouse or dependent under another employer’s plan

9.Open enrollment under the plan of another employer for employee, spouse, or dependent.

10. COBRA qualifying event

11. Loss of coverage under the group health plan of governmental or education institution (i.e SHOP, Medicaid,  etc)

12. Entitlement to Medicare or Medicaid

13. Change in Citizenship Status

14. Loss / Gain of coverage in the Marketplace or Exchange by employee, spouse or dependent

Now What?

Once you have determined if an employee has experienced a qualifying event, you will need to have them complete a new election form (or change form) indicating the reason for their mid-year change and the date of the qualifying event. An employer is not required to keep copies of additional documents as proof of the qualifying event (i.e birth certificate, marriage certificate, etc) but you are required to inspect any necessary documents to validate an appropriate qualifying event has occurred and the date of occurrence. Be sure to indicate on the employee’s updated election/change form the date of the actual qualifying event as this will be the date that the coverage change takes effect with the carrier(s). 

Example- Employee gets married on August 5th and wishes to add their new spouse to their coverage. They notify you within the allotted 30 day time frame. The spouse’s new coverage begins under your group plan as of the date of marriage (August 5th) and you will need to adjust any payroll deductions accordingly.

It is important to make sure you (as the employer) have documentation of any employee elections /change in the event that your group experiences an audit or an employee questions any elections/payroll deductions.

Depending on how your current contracts are set up with your insurance carriers will depend on how qualifying event changes affect your premiums with respect to any mid-month changes. Make certain any qualifying event changes are also processed with payroll and their deductions are adjusted accordingly once changes are processed with the insurance carriers. 

Should you have any questions about how to properly administer a qualifying event change or if you want to implement a Section 125 Premium Only Plan, please contact our office for assistance. 

Pay or Play…That is the Question (Part 3)

The Patient Protection and Affordable Care Act (the “ACA”) adds a new Section 4980H to the Internal Revenue Code of 1986 which requires employers to offer health coverage to their employees (aka the “Employer Mandate”). The following Q&As are designed to deal with commonly asked questions.  These Q&As are based on proposed regulations and final regulations, when issued, may change the requirements.

Question 3: When Is the Employer Mandate Effective and What Transition Rules Apply?

Large employers are subject to the Employer Mandate beginning on January 1, 2014. However, the effective date for employers that have fiscal year health plans is deferred if certain requirements are met. There are also special transition rules for offering coverage to dependents, offering coverage through multi-employer plans, change in status events under cafeteria plans, determining large employer status, and determining who is a full-time employee.

Fiscal Year Health Plans

An employer with a health plan on a fiscal year faces unique challenges concerning the Employer Mandate. Because terms and conditions of coverage may be difficult to change mid-year, a January 1, 2014 effective date would force fiscal year plans to be compliant for the entire fiscal 2013 plan year. Recognizing the potential burdens, the IRS has granted special transition relief for employers that maintained fiscal year health plans as of December 27, 2012. Both transition relief rules apply separately to each employer in a group of related employers under common control.

• Rule #1- employers will not be subject to a penalty on the basis of any full-time employee who (under a fiscal year plan in effect as of 12/27/12) would be eligible for coverage as of the first day of the 2014 fiscal plan year. The transition rule applies only if such employee is offered coverage, no later than the first day of the 2014 plan year, that otherwise meets the requirements of the Employer Mandate.

   

• Rule #2- an employer has one or more fiscal year plans (that have the same plan year as of December 27, 2012) and, together, either cover at least 25% of the employees or offered coverage to at least one third of the  employees during the most recent open enrollment period that ended prior to December 27, 2012. If one of these prerequisites is met, the employer will not be subject to a penalty on the basis of any full-time employee who (i) is offered coverage, no later than the first day of the 2014 plan year, that otherwise meets the requirements of the Employer Mandate, and (ii) would not have been eligible for coverage under any calendar year group health plan maintained by the employer as of December 27, 2012.

   

Coverage of Dependents

Large employers must offer coverage not just to their full-time employees but also to their dependents to avoid the Employer Mandate penalty. A “dependent” for this purpose is defined as a full-time employee’s child who is under age 26. Because this requirement may result in substantial changes to eligibility for some employer-sponsored plans, the IRS is providing transition relief for 2014. As long as employers “take steps” during the 2014 plan year to comply and offer coverage that meets this requirement no later than the beginning of the 2015 plan year, no penalty will be imposed during the 2014 plan year solely due to the failure of the employer to offer coverage to dependents.

Multiemployer Plans

Multiemployer plans represent another special circumstance because their unique structure complicates application of the Employer Mandate rules. These plans generally are operated under collective bargaining agreements and include multiple participating employers. Typically, an employee’s is determined by considering the employee’s hours of service for all participating employers, even though those employers generally are unrelated. Furthermore, contributions may be made on a basis other than hours worked, such as days worked, projects completed, or a percentage of earnings. Thus, it may be difficult to determine how many hours a particular employee has worked over any given period of time.

To ease the administrative burden faced by employers participating in multiemployer plans, a special transition rule applies through 2014. Under this transition rule, an employer whose full-time employees participate in a multiemployer plan will not be subject to any Employer Mandate penalties with respect to such full-time employees, provided that:

(i) the employer contributes to a multiemployer plan for those employees under a collective bargaining agreement or participation agreement

(ii) full-time employees and their dependents are offered coverage under the multiemployer plan, and

(iii) such coverage is affordable and provides minimum value.

This rule applies only to employees who are eligible for coverage under the multiemployer plan. Employers must still comply with the Employer Mandate under the normal rules with respect to its other full-time employees.

Change in Status Events under Fiscal Year Cafeteria Plans

The IRS has also issued transition rules that apply specifically to fiscal year cafeteria plans. Under tax rules applicable to cafeteria plans, an employee’s elections must be made prior to the beginning of the plan year and may not be changed during the plan year, unless the employee experiences a “qualifying event”. An employee’s mid-year enrollment in health coverage through an Exchange or in an employer’s health plan to meet the obligation under the ACA’s individual mandate to obtain health coverage is not a “qualifying event” under the current cafeteria plan rules.

The IRS addresses this by providing that a large employer that operates a fiscal year cafeteria plan may amend the plan to allow for mid-year changes to employee elections for the 2013 fiscal plan year if they are consistent with an employee’s election of health coverage under the employer’s plan or through an Exchange. Specifically, the plan may provide that an employee who did not make a Sec. 125 election to purchase health coverage before the deadline for the 2013 fiscal plan year is permitted to make such an election during the 2013 fiscal plan year, and/or that an employee who made a Section 125 election to purchase health coverage is permitted to revoke/change such election once during the 2013 fiscal plan year, regardless of whether a qualifying event occurs with respect to the employee.

This transition rule applies only to elections related to health coverage and not to any other benefits offered under a cafeteria plan. Any amendment to implement this transition rule must be adopted no later than December 31, 2014 and can be retroactively effective if adopted by such date.

Determining Large Employer Status and Who is a Full-Time Employee

The IRS has also issued transition rules for determining large employer status and determining who is a full-time employee. In general, large employer status is based on the number of employees employed during the immediately preceding year. In order to allow employers to have sufficient time to prepare for the Employer Mandate before the beginning of 2014, for purposes of determining large employer status for 2014 only, employers may use a period of no less than 6 calendar months in 2013 to determine their status for 2014 (rather than using the entire 2013 calendar year).