Benefits Q&A: Changing Plans With Life Events & Limitations

Question:

One of our employees is asking about what changes she can make to her benefits elections mid-year due to her husband’s change in jobs. The husband will be electing COBRA for himself for the time frame before benefits take effect with his new employer. They would rather not pay COBRA rates for the kids, so she wants to add them to our medical and vision plans. The kids are currently covered on the husband’s health plan but do not have vision coverage. She also wants to switch her health coverage from the HDHP to the PPO.

I am pretty confident the employee can add the kids to her health insurance because of her husband’s loss of coverage. My questions are:

• Can she switch one health plan option to another (i.e., from the HDHP to the PPO)?
• Can she can enroll her kids in the vision plan even though they do not have vision coverage through her husband’s plan (and therefore aren’t experiencing a loss of other coverage)?

Answer:

You are definitely asking the right questions!

As you know, cafeteria plan rules restrict the situations in which employees can change their benefits elections in the middle of a plan year. While neither of the scenarios you describe is specifically addressed in regulations, IRS officials have informally commented that:

1. Only similar coverages can change due to a loss of other coverage. (So the kids’ loss of medical coverage does not entitle the employee to add them to your dental or vision plan); and
2. Employees may elect a different plan option (e.g., PPO, HMO, or HDHP) when changing to a different coverage tier. (For example, from employee-only to employee+children or employee+family.)

So in your scenario, you may allow the employee to elect coverage under the PPO for herself and her kids, but may not allow her to add the kids to vision plan.