Changing Health Plan Elections Based on Spouse’s Different Plan Year
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Changing Health Plan Elections Based on Spouse’s Different Plan Year
By Brian Gilmore | Published August 14, 2020
Question: When can employees change their election based on a spouse’s different plan year?
Short Answer: The Section 125 permitted election change event rules allow employees to enroll in or drop coverage mid-year based on a spouse’s different plan year.
Section 125 General Rule: Elections Irrevocable
That general rule under Section 125 is that employee health and welfare plan elections (including an affirmative or default election not to participate) to pay the employee-share of the premium on a pre-tax basis through the cafeteria plan must be:
- Made prior to the start of the plan year; and
- Irrevocable for the plan year unless the employee experiences a permitted election change event.
Insurance carriers (and stop-loss providers for self-insured plans) generally follow the same Section 125 permitted election change event rules with respect to mid-year coverage change elections.
Note: Special relaxed election change rules may apply in 2020 related to the COVID-19 pandemic.
For full details, see our Newfront Office Hours Webinar: Section 125 Cafeteria Plans .
For a summary of the permitted election change events, see our Newfront Section 125 Permitted Election Change Event Chart .
Permitted Election Change Event: Spouse’s Employer Has Different Health Plan Year
Absent a permitted election change event allowing either the employee or spouse to change their plan election, employees would face a rather cruel dilemma when moving to the other plan: They would either have to experience a gap in coverage or a period of double coverage during the overlapping portion of the two plan years.
Fortunately, the Section 125 permitted election change event rules recognize that there are often situations where employees have a different health plan year than their spouse’s employer-sponsored group health plan. The rules address this concern by permitting employees to change their health plan election on account of and corresponding with the start of the spouse’s new plan year.
There are four main situations that can apply with this event:
Different Plan Year Situation 1: Spouse Moves to Employee’s Plan at End of Spouse’s Plan Year
In this situation, the spouse can drop coverage at the spouse’s open enrollment, and the employee can use the permitted election change event to enroll the spouse in the middle of the employee’s health plan year.
Example 1:
- Employee Serena and spouse Alexis are married with different employer-sponsored group health plan coverage.
- Employee Serena is enrolled in employee-plus-child coverage through her employer’s health plan for the 2020 calendar plan year.
- Spouse Alexis is enrolled in employee-only coverage through his employer’s health plan that has a plan year beginning September 1.
- Spouse Alexis wants to move from his employer’s plan.
Result 1:
- At open enrollment for the plan year beginning September 1, 2020, spouse Alexis can elect no coverage under his employer’s plan.
- Employee Serena can make a mid-year election change to enroll spouse Alexis in her calendar year health plan effective September 1, 2020.
- Employee Serena generally only needs to certify to her employer that her spouse Alexis has a September 1 plan year and is electing to drop coverage at his open enrollment.
- As long as employee Serena’s employer has no reason to believe that her certification incorrect, Serena’s employer can permit her to elect family coverage as of September 1, 2020.
Note: This situation would be the same if the entire family was originally enrolled in spouse Alexis’s plan, and all family members were moving to employee Serena’s plan as of September 1, 2020.
Different Plan Year Situation 2: Employee Moves to Spouse’s Plan at End of Spouse’s Plan Year
In this situation, the spouse can enroll the employee in coverage at the spouse’s open enrollment, and the employee can use the permitted election change event to drop coverage in the middle of the employee’s health plan year.
Example 2:
- Employee Serena and spouse Alexis are married with different employer-sponsored group health plan coverage.
- Employee Serena is enrolled in employee-plus-child coverage through her employer’s health plan for the 2020 calendar plan year.
- Spouse Alexis is enrolled in employee-only coverage through his employer’s health plan that has a plan year beginning September 1.
- Employee Serena wants to move herself and the child from her employer’s plan.
Result 2:
- At open enrollment for the plan year beginning September 1, 2020, spouse Alexis can elect to enroll himself, employee Serena, and the child.
- Employee Serena can make a mid-year election change to revoke coverage with her employer effective September 1, 2020.
- Employee Serena generally only needs to certify to her employer that her spouse has a September 1 plan year and is electing to enroll employee Serena and the child at his open enrollment.
- As long as Serena’s employer has no reason to believe that her certification incorrect, Serena’s employer can permit her to revoke coverage for herself and the child effective September 1, 2020.
Note: This situation would be the same if the entire family was originally enrolled in employee Serena’s plan, and all family members were moving to spouse Alexis’s plan as of September 1, 2020.
Different Plan Year Situation 3: Spouse Moves to Employee’s Plan at Start of Employee’s Plan Year
In this situation, the employee can enroll the spouse in coverage at the employee’s open enrollment, and the spouse can use the permitted election change event to drop coverage in the middle of the spouse’s health plan year.
Example 3:
Result 3:
- At open enrollment for the 2021 plan year, employee Serena can elect to enroll herself, spouse Alexis, and the child.
- Spouse Alexis can make a mid-year election change to revoke coverage with his employer effective January 1, 2021.
- Spouse Alexis generally only needs to certify to his employer that his spouse (employee Serena) has a calendar plan year and is electing to enroll him at her open enrollment.
- As long as spouse Alexis’s employer has no reason to believe that his certification incorrect, Alexis’s employer can permit him to revoke coverage for himself effective January 1, 2021.
Note: This situation would be the same if the entire family was originally enrolled in spouse Alexis’s plan, and all family members were moving to employee Serena’s plan as of January 1, 2021.
Different Plan Year Situation 4: Employee Moves to Spouse’s Plan at Start of Employee’s Plan Year
In this situation, the employee can drop coverage at the employee’s open enrollment, and the spouse can use the permitted election change event to enroll the employee in the middle of the spouse’s health plan year.
Example 4:
Result 4:
- At open enrollment for the 2021 plan year, employee Serena can elect no coverage under her employer’s plan.
- Spouse Alexis can make a mid-year election change to enroll employee Serena and the child in his health plan effective January 1, 2021.
- Spouse Alexis generally only needs to certify to his employer that his spouse (employee Serena) has a calendar plan year and is electing to drop coverage for herself and the child at her open enrollment.
- As long as spouse Alexis’s employer has no reason to believe that his certification incorrect, Alexis’s employer can permit him to elect family coverage as of January 1, 2021.
Note: This situation would be the same if the entire family was originally enrolled in employee Serena’s plan, and all family members were moving to spouse Alexis’s plan as of January 1, 2021.
Same Rules Apply for Domestic Partners or Children
For employees who have eligible domestic partners or children whose employer-sponsored group health plan has a different plan year, the same rules described above for spouses would apply.
No Health FSA Election Change Permitted
This permitted election change event for different health plan years does permit employees to change their health FSA election.
Important Caveat: Carrier Approval
Although this different plan year situation creates a permitted election change event under Section 125, the employer should still confirm that the carrier (or stop-loss provider for a self-insured plan option) will accept the mid-year spouse enrollment. Insurance carriers (and stop-loss providers for self-insured plans) generally follow the same Section 125 permitted election change event rules with respect to this different plan year rule—but employers should confirm to be sure.
Important Caveat: Spouse’s Employer Approval
As with all of the Section 125 permitted election change events (other than the mandatory HIPAA special enrollment events), cafeteria plans are not required to offer this different plan year permitted election change event. Employers typically offer employees the ability to change their plan elections to the maximum extent possible under Section 125, but an employee seeking to make a mid-year change under the spouse’s health plan (Examples 3 and 4 above) should first have the spouse confirm with the spouse’s employer that it will approve the request under these standard provisions.
Regulations
Treas. Reg. §1.125-4(f):
(f) Significant cost or coverage changes.
(1) In general. Paragraphs (f)(2) through (5) of this section set forth rules for election changes as a result of changes in cost or coverage. This paragraph (f) does not apply to an election change with respect to a health FSA (or on account of a change in cost or coverage under a health FSA).
(4) Change in coverage under another employer plan. A cafeteria plan may permit an employee to make a prospective election change that is on account of and corresponds with a change made under another employer plan (including a plan of the same employer or of another employer) if—
(i) The other cafeteria plan or qualified benefits plan permits participants to make an election change that would be permitted under paragraphs (b) through (g) of this section (disregarding this paragraph (f)(4)); or
(ii) The cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the other cafeteria plan or qualified benefits plan.
(6) Examples. The following examples illustrate the application of this paragraph (f):
Example (2).
(i) Employer N sponsors an accident or health plan under which employees may elect either employee-only coverage or family health coverage. The 12-month period of coverage under N’s cafeteria plan begins January 1, 2001. N’s employee, A, is married to B. Employee A elects employee-only coverage under N’s plan. B’s employer, O, offers health coverage to O’s employees under its accident or health plan under which employees may elect either employee-only coverage or family coverage. O’s plan has a 12-month period of coverage beginning September 1, 2001. B maintains individual coverage under O’s plan at the time A elects coverage under N’s plan, and wants to elect no coverage for the plan year beginning on September 1, 2001, which is the next period of coverage under O’s accident or health plan. A certifies to N that B will elect no coverage under O’s accident or health plan for the plan year beginning on September 1, 2001 and N has no reason to believe that A’s certification is incorrect.
(ii) Under paragraph (f)(4)(ii) of this section, N’s cafeteria plan may permit A to change A’s election prospectively to family coverage under that plan effective September 1, 2001.
The Author
Brian Gilmore
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.
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