Are employees able to drop their group health coverage during the plan year?

Yes, if the employee is paying his or her share of the benefits with post-tax dollars.

If the employee has signed a salary reduction agreement to make pre-tax contributions to premiums or to a Flexible Spending Account through a Section 125 plan, then he/she is subject to the Irrevocable Election Rule.

The Irrevocable Election Rule requires the employee to remain in the plan (and continue to make agreed-upon FSA contributions) until the plan’s renewal date unless he/she has a qualifying event.

Here are the rules from the IRS:

Here is a SHRM article on this topic:

Elections for pre-tax group health insurance are generally irrevocable for the plan year under Section 125 of the Internal Revenue Code. However, the Internal Revenue Service (IRS) provides specific instances when an employee can make midyear election changes (or “permitted change in election events”):

  • Change in marital status.
  • Change in number of dependents.
  • Change in employment.
  • Change in dependent eligibility due to plan requirements (e.g., loss of student status, age limit reached).
  • Change in residence (e.g., employee or dependent moves out of plan service area).
  • Significant cost changes in coverage. uSignificant curtailment of coverage.
  • Addition or improvement to benefits package option.
  • Change in coverage of spouse or dependent under another employer plan (e.g., spouse’s employer had no insurance coverage before but now offers a plan).
  • Loss of certain other health coverage (e.g., plans provided by governmental or educational institutions).
  • Health Insurance Portability and Accountability Act (HIPAA) special enrollment rights.
  • Judgments, decrees or orders. uEntitlement to Medicare or Medicaid.
  • Change in hours worked to less than 30 hours per week on average if the employee and covered family members enroll in another plan providing minimum essential coverage.
  • Enrollment in a marketplace exchange plan during an exchange special or open enrollment period. Employees and others covered must enroll in the exchange plan by the first day after coverage ends under the employer plan. SeeIRS Notice 2014-55 for details.

IRS Notice 2014-55

PeopleKeep explains the two new options for getting out of a cafeteria plan mid-year:

An employee’s hours were reduced to fewer than 30 hours (on average) per week and the employee is still eligible for the employer’s health plan coverage.

An employee wants to stop participating in the employer’s group health plan to instead purchase coverage through an ACA Marketplace. This could be to enroll in a Marketplace plan during the annual open enrollment period, or during a Special Enrollment Period. To be eligible for a Special Enrollment Period, an employee must have a Qualifying Life Event such as a marriage or divorce, birth or adoption of a child, loss of employer-based coverage, etc.

Note: These new cafeteria plan rules apply to health plans that provide minimum essential coverage. The new rules do not apply to Health FSAs.

Important Notes

Employers do not have to allow employees to make midyear elections changes except those under the HIPAA special enrollment rights. An employer should include in the plan documents and summary plan description which events, if any, would allow for an employee to make midyear election changes.

If a change in status does occur, the election changes should be consistent with that event. For example, if an employee divorces, the employee may drop coverage for the spouse but not for themselves or other covered dependents.

The amount of time an employee has to request a change to his or her group health coverage is defined by the employer’s plan rules, often 30 or 60 days, and may not be too far removed to ensure the change is clearly consistent with the event.

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