Most employer-sponsored health plans are part of a cafeteria plan. Under the cafeteria plan rules, employees generally cannot change their health plan coverage election during the plan year and must wait until the next open enrollment period to make changes that will take effect at the beginning of the next plan year. There are certain exceptions, including the ability to make changes to coverage during a plan year because of certain changes in family status, such as the birth of a child during the year. Notice 2014-55, issued by the IRS on Sept. 18, provides that employees may revoke coverage under the employer's health plan during the plan year in two circumstances: Revocation due to a reduction in hours of service, and a revocation due to enrollment in a qualified health plan through a federal or state exchange.
A revocation based on a reduction in hours of service occurs when the employee has an employment status under which he or she was reasonably expected to average at least 30 hours of service per week, and that employee's status has changed so that he or she will reasonably be expected to average less than 30 hours of service per week after the change, even if that reduction doesn't cause the employee to be ineligible under the employer's plan. The revocation must also correspond to the intended enrollment of the employee, and any related individuals who cease coverage because of the revocation, in another plan with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.
A revocation based on enrollment in a health care plan exchange occurs when the employee is eligible to enroll in a health plan through a federal or state exchange established under the Affordable Care Act, and the revocation of the election of coverage under the employer's plan corresponds to the intended enrollment of the employee and any related individuals who cease coverage because of the revocation, in an exchange plan for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.
The permitted changes described previously don't apply to an employee's coverage under a health flexible spending arrangement.
The rules in the notice were effective as of Sept. 18, 2014. To allow the new permitted election changes under the notice, a cafeteria plan must be amended to provide for the election changes. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed, and may be effective retroactively to the first day of that plan year. A cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015. However, an election to revoke coverage retroactively is never allowed.
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