Due to the ongoing COVID-19 pandemic, we are seeing all kinds of unprecedented changes in the fully insured group health plan space. Many insurers generously waive their normal rules to allow employer and employee coverage to continue when needed. While accommodations are welcome, employers should exercise caution before allowing employees to take full advantage of changes. There is the Employees Retirement Income Security Act (ERISA) and the implications of tax legislation to consider that are often overlooked in insurer announcements related to coverage improvements, and employee communications on legal mandates are essential.
Special registration event
Some insurers are treating the COVID-19 pandemic as a special enrollment event and allow employers to allow employees to purchase group health insurance coverage for a limited period mid-year. However, for employers who offer employees pre-tax benefits, the tax rules of Section 125 of the Internal Revenue Code must be considered.
Current tax law
Section 125 does not allow employees to change their coverage choices due to a pandemic. Instead, current tax law requires a qualifying election change event to allow for a change in pre-tax benefit elections, and the employer’s Section 125 plan must include this election change rule.
Eligible election change events, which have been firmly established by the IRS for years, include job changes, such as the start or return of unpaid leave or a change of workplace, but only if the change is due to and corresponds with a change in status that affects eligibility for coverage under an employer plan. This established definition could correspond to the changes related to COVID-19 that some employees are experiencing, but not all. Insurers propose to authorize even
active employees who have not undergone any job change to enroll in coverage.
The plan selection change rules under section 125 also allow changes in the event of “material” changes in coverage. However, in the absence of further guidance, it is not clear whether the IRS would consider changes to group health plan coverage mandated by the Families First Coronavirus Response Act or other future legislation as “significant.”
[SHRM members-only toolkit:
Communicating with Employees About Health Care Benefits Under the Affordable Care Act]
Actions for employers
If section 125 regulations get in the way of what an employer wants to do, it is possible to implement coverage choices outside of section 125 plans. This means that employees who join a plan during the special COVID-19 enrollment window should pay the employee’s premium portion for coverage with
after tax dollars. Before pressing “go”, note:
- Many payroll systems are not configured to support before and after tax group medical deductions. This issue must be resolved in consultation with payroll teams or vendors before this opportunity is offered.
- Most employees don’t expect their group health insurance premiums to be taxable. Communicating with employees on the tax aspects of this enrollment decision at the same time as the opportunity is presented to employees is essential to defining employee expectations and avoiding future conflicts.
- Other benefit plan documents, including integrated plans, must be reviewed and amended, as necessary, to implement this unique coverage offering.
Waiver of eligibility conditions
Other insurers waive the eligibility requirements for active duty and hours of service. However, keep in mind that under ERISA the terms of the scheme control entitlement to benefits. So while insurance companies will not exercise their right to cancel coverage when plan conditions are not met, employers should still be vigilant in ensuring that their plan documents reflect the coverage offered. .
Employers should seek changes to policies and plans to reflect leniency granted by insurers. And employers should request written confirmation (including detailed definitions of important terms such as “leave” and “temporary leave”) of any change in an insurer’s eligibility requirements.
Suzanne G. Odom,
Natalie M. Nathanson and
Brian M. Johnston are attorneys for Jackson Lewis in Greenville, SC, Miami, Florida, and Overland Park, Kan., respectively.
© 2020 Jackson Lewis PC. All rights reserved. Republished with permission.