Question: What are the general HIPAA Special Enrollment Event election, timing and coverage option rules? How are they different from generic Section 125 Permitted Election Change Events?

Compliance Team Response:

HIPAA Special Enrollment Events: Overview

HIPAA Special Enrollment Events are a subset of the Section 125 Permitted Election Change Events that provide special rights.

The following events qualify as HIPAA special enrollment events:

• Loss of eligibility for group health coverage or individual health insurance coverage;

• Loss of Medicaid/CHIP eligibility or becoming eligible for a state premium assistance subsidy under Medicaid/CHIP; and

• Acquisition of a new spouse or dependent by marriage, birth, adoption, or placement for adoption.

The DOL has a summary of the HIPAA special event rules here: DOL EBSA Health Insurance Portability and Accountability Act (HIPPA)

HIPAA Special Enrollment Events: Right to Change Plan Options

Upon experiencing a HIPAA special enrollment event, the plan is **required **to allow the employee to select any medical benefit package under the plan (e.g., move from Aetna to Blue Shield, Anthem to Kaiser, HMO Low to PPO High, etc.).

HIPAA Special Enrollment Events: General 30-Day Election Period

Employees must have a period of at least 30 days from the date of the event to change their elections pursuant to a HIPAA Special Enrollment Event.  Employers wishing to offer a longer election period should first seek approval from the insurance carrier (or stop-loss provider).

HIPAA Special Enrollment Events: Special 60-Day Medicaid/CHIP Election Period

When employees lose Medicaid/CHIP eligibility, or where they gain eligibility for a state premium assistance subsidy under Medicaid/CHIP, they must have at least 60 days from the date of the event to change their elections.  Employers wishing to offer a longer election period should first seek approval from the insurance carrier (or stop-loss provider).

HIPAA Special Enrollment Events: General First-of-the-Month-Following-Election Effective Date Rule

The general rule is that an election to enroll in coverage pursuant to a HIPAA Special Enrollment Event must be effective **no later than the first of the month following the date of the election change request. **

For example, assume that Jack marries Jill on January 19.  Jack submits the election change request to enroll Jill on January 22.  Jill’s coverage should be effective no later than February 1.

Now assume that Jack marries Jill on January 19, but does not submit the election change request to enroll Jill until February 14.  Jill’s coverage should be effective no later than March 1.

HIPAA Special Enrollment Events: Birth, Adoption, Placement for Adoption Retroactive-to-Event Effective Date

When an employee has a new child through birth, adoption, or placement for adoption, coverage for the new child must be effective as of the date of the event (i.e., the date of the birth, adoption, or placement for adoption).

For example, assume that Jack’s spouse Jill has a child on January 19.  Jack submits the election change to enroll Jill on February 14.  The child’s coverage must be effective as of January 19 (DOB).

HIPAA Special Enrollment Events: Existing Dependents

Upon birth, the rules limit the special enrollment rights to the employee, the spouse, and any newly acquired dependents (i.e., the newborn child).  Any other dependents (e.g., siblings of the newborn child) are not entitled to special enrollment rights upon the employee’s acquisition of the new dependent through birth.

The exclusion of existing dependents from special enrollment rights prevents the employee from having the right to add an existing child to the plan upon the birth of a new child.

Section 125 Permitted Election Change Events: Paying for Retroactive Coverage

Employee pre-tax premium payments are made through the company’s Section 125 cafeteria plan.  Section 125 does not permit retroactive elections except where the event is birth, adoption, or placement for adoption.  (There could also be a retroactive mid-year election for a new hire for elections made within 30 days after date of hire.)

In all other cases, the election must be prospective.  This means that the employee cannot pay for an election change on a pre-tax basis for any period prior to the date of the election.

Example 1: First of the Month Following Election Change Request

For example, assume again that Jack marries Jill on January 19, and submits the election to enroll Jill on February 14.  As described above, the standard approach would be for coverage to be effective as of March 1 (first on the month following the date of the election change request).

Example 2: Date of Election Change Request

Some employers may choose to be more generous and permit Jill’s enrollment as of February 14 (the date of the election change request).  If coverage is effective as of February 14 (the date of the election change request), there is no issue (assuming the carrier or stop-loss provider approves of the more generous practice) because coverage is not retroactive from the date of the election change request.

Example 3: Date of Event

On the other hand, if coverage is effective as of January 19 (the date of the marriage), there would be an issue because coverage is retroactive from the date of the election change request (February 14).  In that case, there is no basis for permitting Jack to pay for Jill’s coverage on pre-tax basis for the period prior to the date of the election (from January 19 through February 13).   **That would mean that either a) the company must pay the full cost of coverage for the period from the date of the event to the date of the election, or b) the employee must pay for the coverage on an after-tax basis for the period from the date of the event to the date of the election.  **Needless to say, neither of those options are ideal.

Many companies avoid this issue by providing coverage as of the first of the month following the date of the election change request (except for birth, adoption, and placement for adoption, and mid-year new hire elections made within 30 days of hire).  That will always permit the employee to pay pre-tax for the employee-share of the premium for the entire period of coverage.

As a reminder, employers should seek insurance carrier (or stop-loss provider) approval for coverage to be effective as of the date of the event because that is only required for newborns and children newly adopted or placed for adoption with the employee.

Section 125 Permitted Election Change Event Summary Chart

Please consult our Section 125 Permitted Election Change Event Chart for a full summary of all these election change rules, including the HIPAA Special Enrollment Events.

Regulations:

.** 29 CFR § 2590.701-6(b):**

(b) Special enrollment with respect to certain dependent beneficiaries.

…

_(2)  _Individuals eligible for special enrollment.

An individual is described in this paragraph (b)(2) if the individual is otherwise eligible for coverage in a benefit package under the plan and if the individual is described in paragraph (b)(2)(i), (ii), (iii), (iv), (v), or (vi) of this section.

(i)   Current employee only. A current employee is described in this paragraph (b)(2)(i) if a person becomes a dependent of the individual through marriage, birth, adoption, or placement for adoption.

(ii)   Spouse of a participant only. An individual is described in this paragraph (b)(2)(ii) if either—

(A)   The individual becomes the spouse of a participant; or

(B)   The individual is a spouse of a participant and a child becomes a dependent of the participant through birth, adoption, or placement for adoption.

(iii)   Current employee and spouse. A current employee and an individual who is or becomes a spouse of such an employee, are described in this paragraph (b)(2)(iii) if either—

(A)   The employee and the spouse become married; or

(B)   The employee and spouse are married and a child becomes a dependent of the employee through birth, adoption, or placement for adoption.

(iv)   Dependent of a participant only. An individual is described in this paragraph (b)(2)(iv) if the individual is a dependent (as defined in §2590.701-2 ) of a participant and the individual has become a dependent of the participant through marriage, birth, adoption, or placement for adoption.

(v)   Current employee and a new dependent. A current employee and an individual who is a dependent of the employee, are described in this paragraph (b)(2)(v) if the individual becomes a dependent of the employee through marriage, birth, adoption, or placement for adoption.

(vi)   Current employee, spouse, and a new dependent. A current employee, the employee’s spouse, and the employee’s dependent are described in this paragraph (b)(2)(vi) if the dependent becomes a dependent of the employee through marriage, birth, adoption, or placement for adoption.

…

_(3) _ Applying for special enrollment and effective date of coverage.

• (i) Request. A plan or issuer must allow an individual a period of at least 30 days after the date of the marriage, birth, adoption, or placement for adoption (or, if dependent coverage is not generally made available at the time of the marriage, birth, adoption, or placement for adoption, a period of at least 30 days after the date the plan makes dependent coverage generally available) to request enrollment (for the individual or the individual’s dependent).

• (ii) Reasonable procedures for special enrollment. [Reserved]

• (iii) Date coverage must begin.- (A) Marriage. In the case of marriage, coverage must begin no later than the first day of the first calendar month beginning after the date the plan or issuer receives the request for special enrollment.- (B) Birth, adoption, or placement for adoption. Coverage must begin in the case of a dependent’s birth on the date of birth and in the case of a dependent’s adoption or placement for adoption no later than the date of such adoption or placement for adoption (or, if dependent coverage is not made generally available at the time of the birth, adoption, or placement for adoption, the date the plan makes dependent coverage available).

Example  (2)  (i) Facts. Individual D works for Employer X. X maintains a group health plan with two benefit packages–an HMO option and an indemnity option. Self-only and family coverage are available under both options. D enrolls for self-only coverage in the HMO option. Then, a child, E, is placed for adoption with D. Within 30 days of the placement of E for adoption, D requests enrollment for D and E under the plan’s indemnity option.

(ii) Conclusion. In this Example 2, D and E satisfy the conditions for special enrollment under paragraphs (b)(2)(v) and (b)(3) of this section. Therefore, the plan must allow D and E to enroll in the indemnity coverage, effective as of the date of the placement for adoption.

ERISA § 701(f)(3)(A):

_(3) _Special rules for application in case of Medicaid and CHIP

(A) In general. A group health plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, shall permit an employee who is eligible, but not enrolled, for coverage under the terms of the plan (or a dependent of such an employee if the dependent is eligible, but not enrolled, for coverage under such terms) to enroll for coverage under the terms of the plan if either of the following conditions is met:

(i) Termination of Medicaid or CHIP coverage. The employee or dependent is covered under a Medicaid plan under title XIX of the Social Security Act or under a State child health plan under title XXI of such Act and coverage of the employee or dependent under such a plan is terminated as a result of loss of eligibility for such coverage and the employee requests coverage under the group health plan (or health insurance coverage) not later than 60 days after the date of termination of such coverage.

(ii) Eligibility for employment assistance under Medicaid or CHIP. The employee or dependent becomes eligible for assistance, with respect to coverage under the group health plan or health insurance coverage, under such Medicaid plan or State child health plan (including under any waiver or demonstration project conducted under or in relation to such a plan), if the employee requests coverage under the group health plan or health insurance coverage not later than 60 days after the date the employee or dependent is determined to be eligible for such assistance.

Prop. Treas. Reg. § 1.125-1(c)(7)(ii)(F):

(7) Operational failure.

(i) In general. If the cafeteria plan fails to operate according to its written plan or otherwise fails to operate in compliance with section 125 and the regulations, the plan is not a cafeteria plan and employees’ elections between taxable and nontaxable benefits result in gross income to the employees.

(ii) Failure to operate according to written cafeteria plan or section 125. Examples of failures resulting in section 125 not applying to a plan include the following—

…

(F) Allowing employees to revoke elections or make new elections, except as provided in §1.125-4 and paragraph (a) in §1.125-2;

Prop. Treas. Reg. § 1.125-2:

(a) Rules relating to making and revoking elections

(2) Timing of elections. In order for employees to exclude qualified benefits from employees’ gross income, benefit elections in a cafeteria plan must be made before the earlier of—

(i) The date when taxable benefits are currently available; or

(ii) The first day of the plan year (or other coverage period).

(d) Optional election for new employees. A cafeteria plan may provide new employees 30 days after their hire date to make elections between cash and qualified benefits. The election is effective as of the employee’s hire date. However, salary reduction amounts used to pay for such an election must be from compensation not yet currently available on the date of the election. The written cafeteria plan must provide that any employee who terminates employment and is rehired within 30 days after terminating employment (or who returns to employment following an unpaid leave of absence of less than 30 days) is not a new employee eligible for the election in this paragraph (d)

Treas. Reg. § 1.125-4:

(b) Special enrollment rights.

(1) In general. A cafeteria plan may permit an employee to revoke an election for coverage under a group health plan during a period of coverage and make a new election that corresponds with the special enrollment rights provided in section 9801(f).

(2) Examples. The following examples illustrate the application of this paragraph (b):

Example (1).

(i) Employer M provides health coverage for its employees pursuant to a plan that is subject to section 9801(f). Under the plan, employees may elect either employee-only coverage or family coverage. M also maintains a calendar year cafeteria plan under which qualified benefits, including health coverage, are funded through salary reduction. M’s employee, A, is married to B and they have a child, C. In accordance with M’s cafeteria plan, Employee A elects employee-only health coverage before the beginning of the calendar year. During the year, A and B adopt a child, D. Within 30 days thereafter, A wants to revoke A’s election for employee-only health coverage and obtain family health coverage for A’s spouse, C, and D as of the date of D’s adoption. Employee A satisfies the conditions for special enrollment of an employee with a new dependent under section 9801(f)(2), so that A may enroll in family coverage under M’s accident or health plan in order to provide coverage effective as of the date of D’s adoption.

(ii) M’s cafeteria plan may permit A to change A’s salary reduction election to family coverage for salary not yet currently available. The increased salary reduction is permitted to reflect the cost of family coverage from the date of adoption. (A’s adoption of D is also a change in status, and the election of family coverage is consistent with that change in status. Thus, under paragraph (c) of this section, M’s cafeteria plan could permit A to elect family coverage prospectively in order to cover B, C, and D for the remaining portion of the period of coverage.)

Example (2).

(i) The employer plans and permissible coverage are the same as in Example 1. Before the beginning of the calendar year, Employee E elects employee-only health coverage under M’s cafeteria plan. Employee E marries F during the plan year. F’s employer, N, offers health coverage to N’s employees, and, prior to the marriage, F had elected employee-only coverage. Employee E wants to revoke the election for employee-only coverage under M’s cafeteria plan, and is considering electing family health coverage under M’s plan or obtaining family health coverage under N’s plan.

(ii) M’s cafeteria plan may permit E to change E’s salary reduction election to reflect the change to family coverage under M’s accident or health plan because the marriage would result in special enrollment rights under section 9801(f), pursuant to which an election of family coverage under M’s accident or health plan would be required to be effective no later than the first day of the first calendar month beginning after the completed request for enrollment is received by the plan. Since no retroactive coverage is required in the event of marriage under section 9801(f), E’s salary reduction election may only be changed on a prospective basis. (E’s marriage to F is also a change in status under paragraph (c) of this section, as illustrated in Example 1 of paragraph (c)(4) of this section.

(c) Changes in status.

(1) Change in status rule. A cafeteria plan may permit an employee to revoke an election during a period of coverage with respect to a qualified benefits plan (defined in paragraph (i)(8) of this section) to which this paragraph (c) applies and make a new election for the remaining portion of the period (referred to in this section as an election change) if, under the facts and circumstances—_ _