“Qualifying Events” Made Easy

 

As an employer, one question that challenges you again and again is which benefits can be changed when an employee experiences a family status change.  You may even ask “ what is a family status change or qualifying event”.    For example, an employee gets a divorce and has dependents.  Can the dependents remain on the medical, dental and vision benefits?  Or an employee adopts a child, how and what benefits can be offered to the new dependent?  These situations fall under the umbrella of “qualifying events” and under the IRS there are rules and regulations governing which benefits can be changed and for which dependents.  We’ve created a guide to help walk you define qualifying events and then determine which benefits are impacted.

 

 

Permitted cafeteria plan changes based on a specific qualifying events

 

Under IRS Guidelines, an employer may allow employees to elect certain benefits on a pre-tax basis.  These arrangements are considered “Cafeteria Plans,” which are subject to certain guidelines and rules.  Under a cafeteria plan, an employee can change their pre-tax deferral election during the Open Enrollment period or in the case of a “Qualifying Event.”  Employees must submit a written or electronic request to the employer within 31 days of a Qualifying Event in order to make a related benefit change.

The following sections provide an overview of IRS Qualifying Events and the corresponding benefits that can be changed for each event.

 

PLEASE NOTE:  This document is only summary in nature and does not replace legal advice.  For specific qualifying event issues and questions, please consult your legal counsel for appropriate interpretation.

Section I:  Changes in Employee, Spouse, or Dependent Status

Event

Major Medical

Dental & Vision

Health FSA

DCAP

Group Term Life, AD&D, Disability

A.  Change in Employee’s Legal Marital Status
1.  Gain Spouse (marriage) Employee may enroll or increase election for newly eligible spouse and dependent children (under tagalong rule, preexisting dependents may also be enrolled); coverage option (e.g. PPO to HMO) change may be made; employee may revoke or decrease employee or dependent coverage only when such coverage becomes effective or is increased under the spouse’s plan.

Same as previous column.

Employee may enroll or increase election for newly eligible spouse or dependents, or likely decrease election if employee or dependents become eligible under new spouse’s health plan. Employee may enroll or increase to accommodate newly eligible dependents or decrease or cease coverage if new spouse is not employed or makes a DCAP election under spouse’s plan. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
2.  Lose Spouse (divorce, legal separation, annulment, death of spouse) Employee may revoke election only for spouse; coverage option (e.g. PPO to HMO) change may be made. Employee may elect coverage for self or dependents who lose eligibility under spouse’s plan if such individual loses eligibility as a result of the divorce, legal separation, annulment, or death (under the tagalong rule, any dependents may be enrolled so long as at least one dependent has lost coverage under the spouse’s plan).

Same as previous column.

Employee may decrease election to reflect loss of spouse’s eligibility.  Employee may enroll or increase election where coverage is lost under spouse’s health plan. Employee may enroll or increase to accommodate newly eligible dependents (e.g. due to death of spouse) or cease coverage if eligibility is lost (e.g. due to dependent now living with ex-spouse). Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.

 

Event

Major Medical

Dental & Vision

Health FSA

DCAP

Group Term Life, AD&D, Disability

B.  Change in Number of Employee’s Dependents
1.  Gain Dependent (birth, adoption) Employee may enroll or increase coverage for newly eligible dependent (under tagalong rule, preexisting dependents may also be enrolled); coverage option (e.g. PPO to HMO) change may be made; employee may revoke or decrease employee or dependent coverage if employee or dependent becomes eligible under spouse’s plan.

Same as previous column.

Same as previous column. Employee may enroll or increase to accommodate newly eligible dependents (and any other dependents who were not previously covered, under tag-along rule). Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
2.  Lose Dependent   The employee may drop coverage only for the dependent who loses eligibility; coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

Employee may decrease or cease election for dependent who loses eligibility. Employee may decrease election for dependent who loses eligibility. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
C.  Change in Employment Status of Employee, Spouse, or Dependent That Affects Eligibility
1.  Commencement of Employment by Employee, Spouse, or Dependent (or Other Change in Employment Status) that Triggers Eligibility
a.  Commencement of Employment by Employee or Other Change in Employment Status (e.g. PT to FT, hourly to salaried, etc.) Provided that eligibility was gained for the coverage, employee may add coverage for employee, spouse, or dependents and coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

Same as previous column. Same as previous column. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
b.  Commencement of Employment by Spouse or Dependent or Other Change in Employment Status Triggering Eligibility Under Spouse’s or Dependent’s Plan Employee may revoke or decrease election under employee’s, spouse’s, or dependent’s coverage if employee, spouse, or dependent is added to spouse’s or dependent’s plan; coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

Employee may decrease or cease election if gains eligibility for health coverage under spouse’s or dependent’s plan. Employee may make or increase election to reflect new eligibility (e.g. spouse did not previously work).  Employee may revoke election for dependent’s coverage if dependent is added to spouse’s plan. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
2.  Termination of Employment by Employee, Spouse, or Dependent (or Other Change in Employment Status) that Causes Loss of Eligibility
a.  Termination of Employee’s Employment or Other Change in Employment Status (e.g. unpaid leave, FT to PT, strike, salaried to hourly, etc.) Resulting in a Loss of Eligibility Employee may revoke or decrease election for employee, spouse, or dependent who loses eligibility under the plan.  Coverage option change may be made.

Same as previous column.

Employee may revoke election to reflect loss of eligibility (note that under most health FSAs, employee loses coverage automatically). Employee may revoke or decrease election to reflect loss of eligibility. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
  • Termination and Re-hire Within 30 Days
Prior elections at termination are reinstated unless another event has occurred that allows a change (as an alternative, employer may prohibit participation until the next plan year).

Same as previous column.

Same as previous column. Same as previous column. Same as previous column.
  • Termination and Re-hire After 30 Days
Employee may make new elections

Same as previous column.

Same as previous column. Same as previous column. Same as previous column.
b.  Termination of Spouse’s or Dependent’s Employment or Other Change in Employment Status Resulting in a Loss of Eligibility Employee may enroll or increase election for employee, spouse, or dependents who lose eligibility under spouse’s or dependent’s employer’s plan.  Coverage option change may be made.  Under tagalong rule, previously eligible dependents may also be enrolled.

Same as previous column.

Employee may enroll or increase election to reflect loss of eligibility for health coverage. Employee may enroll or increase election if spouse or dependent loses eligibility for DCAP.  Employee may decrease or cease election to reflect loss of eligibility for coverage (e.g. if spouse stops working). Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
D.  Event Causing Employee’s Dependent to Satisfy or Cease to Satisfy Eligibility Requirements
1.  Event by Which Dependent Satisfies Eligibility Requirements under Employer’s Plan (attaining a specified age, becoming single, becoming student, etc.) Employee may enroll or increase election for newly eligible dependent.  In addition, other previously eligible dependents may also be enrolled under tag-along rule.  Coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

Employee may increase election or enroll only if dependent gains eligibility under health FSA. Employee may increase election or enroll to take into account expenses of affected dependent. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
2.  Event by Which Dependent Ceases to Satisfy Eligibility Requirements under Employer’s Plan (attaining a specified age, getting married, ceasing to be a student, etc.)  Employee may decrease or revoke election only for affected dependent.  Coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

Employee may decrease or revoke election to take into account ineligibility of expenses of affected dependent, but only if eligibility is lost.  If dependent remains a tax dependent and the health FSA provides that the dependent’s expenses remain eligible for reimbursement, then the employee could increase the health FSA election. Employee may decrease or drop election to take into account expenses of affected dependent. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
E.  Change in Residence of Employee, Spouse, or Dependent
1.  Move Triggers Eligibility Employee may enroll or increase election for newly eligible employee, spouse, or dependent.  In addition, other previously eligible dependents may also be enrolled under tag-along rule.  Coverage option (e.g. PPO to HMO) change may be made.

Same as previous column.

No change allowed, even if underlying health coverage change occurs. N/A.  DCAP eligibility is not generally affected by place of residence. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.
2.  Move Causes Loss of Eligibility Employee may revoke election or make new election if the change in residence affects the employee’s, spouse’s, or dependent’s eligibility for coverage option.

Same as previous column.

No change allowed, even if underlying health coverage change occurs. N/A.  DCAP eligibility is not generally affected by place of residence. Employee may enroll, increase, decrease, or cease coverage even when eligibility is not affected.

 

 

 

Event

Major Medical

Dental & Vision

Health FSA

DCAP

Group Term Life, AD&D, Disability

F.  Change in Coverage Under Other Employer Cafeteria Plan or Qualified Benefits Plan
1. Other Employer Plan Increases Coverage Employee may decrease or revoke election for employee, spouse, or dependents if employee, spouse, or dependents have elected or received corresponding increased coverage under other employer plan.

Same as previous column.

No change permitted.

Employee may decrease or revoke election for employee, spouse, or dependents if employee, spouse, or dependents have elected or received corresponding increased coverage under other employer plan.

Same as previous column.

2. Other Employer Plan Decreases or Ceases Coverage Employee may enroll or increase election for employee, spouse, or dependents if employee, spouse, or dependents have elected or received corresponding decreased coverage under other employer plan.

Same as previous column.

No change permitted.

Employee may enroll or increase election for employee, spouse, or dependents if employee, spouse, or dependents have elected or received corresponding decreased coverage under other employer plan.

Same as previous column.

3. Open Enrollment Under Other Employer Plan/ Different Plan Year Corresponding changes can be made under employer’s plan. Corresponding changes can be made under employer’s plan.

No change permitted.

Corresponding changes can be made under employer’s plan. Corresponding changes can be made under employer’s plan.

 

 

Section II:  Other Potential Qualifying Events

Event

Major Medical

Dental & Vision

Health FSA

DCAP

Group Term Life, AD&D, Disability

Other Changes Triggering Eligibility
Cost changes including automatic increases/decreases in elective contributions

Changes permitted

Changes permitted

No change permitted.

Changes permitted

Changes permitted

Significant changes in cost

Changes permitted

Changes permitted

No change permitted.

Changes permitted

Changes permitted

HIPAA Special Enrollment Rights Applies to elections for group health plans that are not excepted benefits under HIPAA.
COBRA Events Applies to elections for group health plans subject to COBRA, including health FSA.
Entitlement to Medicare or Medicaid Applies to elections for plans that provide accident or health coverage, including health FSA.
FMLA Leave Applies to elections for plans that provide accident or health coverage, including health FSA.  Also applies to elections for non-health benefits.
Loss of Group Health Coverage Sponsored by Governmental or Educational Institution

Changes permitted

Changes permitted

Changes NOT permitted

Changes permitted

Changes permitted

Judgments, Decrees or Orders Applies to elections for plans that provide accident or health coverage, including health FSA.
Changes in 401(k) Contributions Applies to elections for 401(k) plans.
Changes in Pre-Tax HSA Contributions Applies to elections to make H.S.A. contributions under a cafeteria plan.

 

Section III:  Consistency Rule – General vs. Special

When an employee presents a change of status, the key is to determine if the change meets the “consistency rule,” which dictates that election changes may only be made when they are consistent with the event.

 

There are Two Phases of Assessing Consistency:

Phase 1 – General Consistency Rules

Phase 2 – Special Consistency Rules

 

General Consistency

Under the “general consistency rule,” an election change satisfies the consistency requirement “if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer’s plan.”  For example, if the change in status is the employee’s divorce, an employee’s election to cancel health coverage will apply only to the spouse (and dependents, if any) whose eligibility is affected by the divorce.

 

Special Consistency

Since in some cases the “on account of and corresponds with” can be ambiguous and difficult to assess, it is helpful to begin the determination with the more specific and special consistency rules.  Once these special rules have been processed or eliminated, the administrator can then proceed to using the general consistency rule to make the determination of what benefits are impacted and for whom.

 

TIP:  Use the decision map on the following page as a guideline to assessing consistency.

Section IV:  Assessing Consistency – Decision Map

 

 

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Author: Millennium Benefits Consulting

Millennium Benefits Consulting (MBC) is an Atlanta-based employee benefit and consulting brokerage firm that was incorporated in 1988. As a privately held, family-oriented organization, MBC stands apart from other consulting houses and brokerage firms because of our passion and talent for creating customized benefit solutions. The MBC team is comprised of associates with a variety of professional backgrounds and related areas of expertise, ranging from large national health insurance carriers to human resource departments. Having dealt extensively with both sides of the healthcare/benefits equation, MBC is uniquely qualified to develop benefit solutions that are valuable for employees, while making the most efficient use of the employer’s resources. Learn more about MBC at www.mbcllc.com. View all posts by Millennium Benefits Consulting →

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