A spouse’s open enrollment may allow an employee to switch to their own employer’s health plan mid-year, even when dropping coverage is voluntary. Learn why the cafeteria plan document matters and what employers should confirm about timing and documentation before approving the change.
An employee is currently covered under her husband’s health plan through his employer. His company has a mid-year open enrollment period, with new elections becoming effective September 1.
Our employee would like to drop her coverage under her husband’s plan during his open enrollment and enroll in our health plan effective September 1 instead. She is not losing coverage because her husband is changing jobs or because his employer is terminating the coverage. She is simply choosing not to remain on his plan.
At first glance, this looks like a voluntary loss of coverage, which normally would not be enough to allow an employee to enroll in our plan outside of our own open enrollment period. Can we treat this as a qualifying life event and allow her to enroll?
Yes, generally. Section 125 cafeteria plan rules may allow an employee to drop coverage under a spouse’s employer plan during that plan’s open enrollment and enroll in her own employer’s plan, even though the loss of coverage is voluntary.
This situation is easy to overlook because it does not involve the type of involuntary loss of coverage HR professionals typically associate with a qualifying event, such as termination of employment, reduced hours, or divorce. However, the cafeteria plan rules also allow election changes due to changes to another employer’s plan, including changes to your employee’s coverage made during a spouse’s open enrollment period.
The key is that the employee is not simply dropping coverage because it is too expensive or no longer preferred. She is making a coordinated change during her spouse’s open enrollment so she can move from one employer-sponsored plan to another.
Before approving the change, make sure it’s allowed by your cafeteria plan document. The Section 125 regulations identify changes that may be permitted, but the written plan controls whether the employer has adopted this particular change and whether any conditions apply. This language may not be in the “Change in Status” section, which lists the more commonly recognized reasons to change elections. It will usually appear in its own section called something like “Change in Coverage Under Another Employer Plan.”
Do not rely only on a provision labeled “loss of other coverage.” Also review provisions addressing changes under another employer’s plan, changes in status, or similar events.
If the plan permits the change, follow its timing and documentation requirements and confirm that the spouse’s coverage ends when the employee’s new coverage begins.
Not a client of The Miller Group? Connect with one of our employee benefits advisors to learn how our compliance team can help you stay on track and confidently meet your obligations.
