cafeteria plans: change in status and changing employee...
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Cafeteria Plans:
Change in Status and Changing
Employee Elections
Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for
expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable
benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance.
Employees are given the opportunity to select the benefits they want, just like an individual standing in the
cafeteria line at lunch.
Only certain benefits can be offered through a cafeteria plan: (1) coverage under an accident or health
plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-
insured medical reimbursement plans, dental, vision, and more); (2) dependent care assistance benefits
or DCAPs; (3) group term life insurance; (4) paid time off, which allows employees the opportunity to buy
or sell paid time off days; (5) 401(k) contributions; (6) adoption assistance benefits; and (7) health savings
accounts or HSAs under IRS Code Section 223.
Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that
you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-
employees, transportation and other fringe benefits, long-term care, and health reimbursement
arrangements (unless very specific rules are met by providing one in conjunction with a high deductible
health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.
Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or
components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also
affected aspects of cafeteria plan administration.
Making Election Changes
Employees are allowed to choose the benefits they want by making elections. Only the employee can
make elections, but they can make choices that cover other individuals such as spouses or dependents.
Employees must be considered eligible by the plan to make elections. Elections, with an exception for
new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be
changed during the plan year, unless a permitted change in status occurs. There is an exception for
mandatory two-year elections relating to dental or vision plans that meet certain requirements.
Plans may allow participants to change elections based on the following changes in status:
Change in marital status
Change in the number of dependents
Change in employment status
A dependent satisfying or ceasing to satisfy dependent eligibility requirements
Change in residence
Commencement or termination of adoption proceedings
Plans may also allow participants to change elections based on the following changes that are not a
change in status but nonetheless can trigger an election change:
Significant cost changes
Significant curtailment (or reduction) of coverage
Addition or improvement of benefit package option
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Change in coverage of spouse or dependent under another employer plan
Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
Changes in 401(k) contributions
HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
COBRA qualifying event
Judgment, decrees, or orders
Entitlement to Medicare or Medicaid
Family Medical Leave Act (FMLA) leave
Pre-tax health savings account (HSA) contributions
Reduction of hours (new under the ACA)
Exchange/Marketplace enrollment (new under the ACA)
Together, the change in status events and other recognized changes are considered “permitted election
change events.”
Common changes that do not constitute a permitted election change event are: a provider leaving a
network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a
legal separation, commencement of a domestic partner relationship, or a change in financial condition.
There are some events not in the regulations that could allow an individual to make a mid-year election
change, such as a mistake by the employer or employee, or needing to change elections in order to pass
nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing
evidence that the mistake has been made. For instance, an individual might accidentally sign up for family
coverage when they are single with no children, or an employer might withhold $100 dollars per pay
period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.
Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts
in the middle of the plan year, so long as automatic election language is in the plan documents. An
“insignificant” amount is considered one percent or less.
Plans should consider which change in status events to allow, how to track change in status requests,
and the time limit to impose on employees who wish to make an election.
Cafeteria plans are not required to allow employees to change their elections, but plans that do allow
changes must follow IRS requirements. These requirements include consistency, plan document
allowance, documentation, and timing of the election change.
Consistency. In order to make the change an employee must have experienced the specified change or
event, and the requested change must be consistent with the change or event.
Example: Susan is a full-time benefits eligible employee of The Oyster House. Susan becomes
Medicare eligible and wishes to make changes to her cafeteria plan elections. If the plan allows, she
would be permitted to make changes to any benefit that provides accident or health coverage,
including a health FSA. She would not be permitted to make changes to other elections such as
dependent care, paid time off, or group life insurance. There is no consistency between Medicare
eligibility and paid time off needs.
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The consistency rules require that an election change is due to and corresponds with the change in status
that effects eligibility for coverage under the plan. There are relaxed consistency rules for group term life
insurance, dismemberment and disability coverage. There are also special consistency rules for election
changes when DCAP or adoption assistance plan expenses are affected, a limitation on changes due to
divorce, death of a spouse or dependent, or a dependent’s loss of eligibility, and a limitation on election
changes decreasing or ending coverage because a new family member has become eligible.
DCAP elections cannot be changed because an unemployed individual enrolls in educational courses. If
a medical plan automatically terminates dependents when they reach age 26, there would be no
qualifying event because no changes would need to be made by the employee.
Overview of Consistent Changes
Type of Event Permitted Change
Change in status event (marital status, number of
dependents, employment status, dependent
eligibility change, change in residence,
commencement or termination of adoption
proceedings)
May make election changes for all qualified
benefits
Significant cost change May make changes to all qualified benefits other
than health FSAs
Significant coverage curtailment or reduction May make changes to all qualified benefits other
than health FSAs
Addition or significant improvement of benefit May make changes to all qualified benefits other
than health FSAs
Change in coverage under another employer plan May make changes to all qualified benefits other
than health FSAs
Involuntary loss of health coverage (such as
coverage sponsored by the government or
educational institution)
May make election changes for any group health
plans
HIPAA special enrollment Must allow employee to make changes for any
group health plans that are not an excepted
benefit under HIPAA
COBRA qualifying event May make election changes for any group health
plans subject to COBRA (this includes FSAs)
Judgments, decrees, or orders May make election changes for accident or health
coverage (this includes FSAs)
Medicare/Medicaid entitlement May make election changes for any accident or
health coverage
FMLA leave of absence May make election changes to accident or health
plan coverage, including health FSAs.
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Type of Event Permitted Change
Reduction of hours May make changes for group health plans (not
FSAs) that provide minimum essential coverage
under the ACA
Exchange enrollment May make changes for group health plans (not
FSAs) that provide minimum essential coverage
under the ACA (other rules apply)
Plan Documents. If an individual has a permitted election change event and the desired change is
consistent with the event, then it must be determined if the cafeteria plan document recognizes the
permitted election change event. If it does not (or the plan does not allow individuals not already on the
plan to elect benefits mid-year), the election change is not allowed. If the plan recognizes the change
event, not only does the cafeteria plan document have to allow the change, but the plan documents of the
component benefit must allow it as well (such as the underlying plan documents for the group health
plan).
Documentation and Timing. If the individual has a permitted election change event, the desired change
is consistent with the event, and the plan documents allow the change, documentation that all of those
requirements have been met should be made. A signed certification by the employee is sufficient. Under
ERISA, these records should be kept for at least eight years. Employees are permitted to make changes
electronically by self-certifying. The employer should keep electronic records of this change.
Plan administrators should administer election changes involving same-sex spouses in the same manner
that they handle election change requests for individuals with opposite-sex spouses.
Change in Status Events
As mentioned above, plans may allow participants to change elections based on an IRS-specified list of
change in status events.
Change in Marital Status
Both same-sex and opposite-sex marital status changes are qualifying events. Legal separations and the
commencement and termination of a domestic partnership are not. There is a narrow exception if a
domestic partnership changes an individual’s tax status. If a domestic partner qualified as a tax
dependent for health coverage purposes, this could trigger a qualifying event.
Change in the Number of Dependents
The change in a number of dependents can trigger a qualifying change in status event. Birth, adoption, or
placement for adoption will likely trigger a HIPAA special enrollment right, which creates a responsibility
for plans subject to HIPAA (discussed later). “Dependent” refers to tax dependent under IRS Code
Section 152, with an exception for accident and health coverage, under which a child to whom IRS Code
section 152(e) applies is treated as a dependent of both parents. IRS Code Section 152(e) involves rules
for divorced parents.
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Change in Employment Status
A change in employment status that affects an individual’s eligibility for a benefit is a permissible change
in status event. The following events are a change in status of an employee (or their spouse, or
dependent):
Termination or beginning of employment
Strike or lockout
Return from or beginning of an unpaid leave of absence
Change in worksite
If benefits eligibility is dependent upon employment status, and that status changes (such as a move from
full time to part-time), this can be a qualifying event. However, unless a plan-allowed “reduction in hours
or cost change event” (discussed below) occurs when an individual becomes part-time but is still benefits
eligible, it is not a qualifying event.
A Dependent Satisfying or Ceasing to Satisfy Dependent Eligibility Requirements
If a tax dependent satisfies or ceases to satisfy the requirement for coverage due to aging out, changing
student status, marriage, etc., this is a qualifying event. Practically speaking, due to the ACA’s
requirement to provide health coverage to children under the age of 26, marriage and student status
changes are unlikely to trigger a qualifying event for health coverage. This might not be the case for other
benefits such as vision or dental coverage.
Change in Residence
A change in residence that affects eligibility for coverage would be a qualifying event. The move must result
in a loss of eligibility for coverage. FSAs cannot be changed due to a residence change. If, for example, an
individual was covered by an HMO and moved out of the network of providers, the employee could be
permitted to drop coverage (if no other coverage was offered by the employer) or elect different coverage.
Keep in mind that a carrier’s network may have providers at the employee’s residence or work location.
Commencement or Termination of Adoption Proceedings
For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination
of an adoption proceeding is a qualifying event.
Other Events that Allow a Change in Elections
Outside of the change in status events, the IRS recognizes other events that would allow a plan to permit
an individual to make an election change.
Significant Cost Changes
A plan may permit individuals to make election changes due to significant cost changes. For this rule to
apply the following must be met:
A benefit plan must be an eligible qualified benefit other than a health FSA.
The cafeteria plan document must include language regarding significant cost changes.
The cost-change being passed on in the form of changed participant contributions must be
significant.
A determination must be made whether any alternative coverage is similar.
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Employees would only be permitted to revoke or drop coverage due to a cost change if no similar
coverage option is available, which is defined as “coverage of the same category of benefits for the same
individuals.” If an employer offers two medical plans, one that is expensive and one that is inexpensive,
regardless of the cost change, an employee would only be permitted to switch to the other plan, not
revoke coverage entirely. This rule would apply even if the two medical plans were very different, such as
an HMO versus a high deductible health plan (HDHP). There is no definition of what constitutes a
“significant” cost change, but the change can be employer or employee initiated.
Significant Coverage Curtailment or Reduction
Plans may allow employees to make mid-year election changes due to a significant coverage curtailment,
with or without a loss of coverage. The definition of coverage curtailment is not entirely clear, and the
regulations state that there is a significant curtailment of coverage “only if there is an overall reduction in
coverage provided under the plan so as to constitute reduced coverage generally.”
In the event of coverage curtailment without a loss of coverage, a participant is only permitted to revoke
his or her election and elect similar coverage. If there is a loss of coverage, participants may only revoke
elections if “no similar benefits package” is available. Again, if an employer offered two medical plans, the
employee would only be permitted to elect the second plan.
Addition or Significant Improvement of Benefit Package Option
In the event an employer adds a new benefit package option or other coverage option, or if an existing
option is significantly improved, eligible employees (including those who had not previously made an
election) may revoke their election and make new elections on a prospective basis for coverage under the
new plan or option. The term “significant improvement of coverage” is not defined but generally an
increase in medical providers available in network is an improvement. If only one component of the
cafeteria plan has an addition, changes can only be made to the election of that component.
Change in Coverage under Another Employer Plan
A cafeteria plan my permit a participant to make election changes due to a change in coverage under
another employer plan. This would be triggered by one of two situations:
The other employer plan allows a permissible election change.
The other employer plan has a different period of coverage.
Example: Susan and John each have medical coverage from their individual employers. Susan’s
employer has a fiscal year plan; John’s employer has a calendar year plan. Susan and John are
married and make no changes to their elections at that time. Six months after getting married they
determine that they would like to be on the same plan. Shortly thereafter, Susan’s plan has open
enrollment. She drops her employer coverage during open enrollment, thus triggering a permissible
change that would allow John to enroll her in his employer’s plan.
Loss of Group Health Coverage
A plan may allow participants to make changes due to the loss of coverage under other group health
coverage, such as a state children’s health insurance program (CHIP), a medical program of an Indian
Tribal government, a state health benefits risk pool, or a foreign government group health plan. This
change applies only to the loss of coverage, not to a gain. Loss of coverage from an educational
institution would also qualify.
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HIPAA Special Enrollment Rights
Group health plans subject to HIPAA must provide special enrollment for certain individuals. Plans are not
required to allow pre-tax election changes for HIPAA special enrollment events; however the
administrative overhead of handling these changes on an after-tax basis is often unduly burdensome.
HIPAA special enrollment rights overlap with other change in status events. The other events are
permissive, but HIPAA enrollment events require the ability to make health coverage changes. HIPAA
special enrollment rights also allow a limited ability to elect retroactive coverage on a pre-tax basis.
HIPAA special enrollment events also obligate the employer to offer a special enrollment period of a
minimum specific duration, typically 30 or 60 days depending on the event.
HIPAA special enrollment events include the loss of health coverage, acquisition of a new dependent (by
marriage, birth, adoption, or placement for adoption) and loss of Medicaid or CHIP coverage.
Enrollment due to loss of coverage under a group health plan means loss of eligibility for non-COBRA
coverage, termination of employer contributions toward non-COBRA coverage, or exhaustion of COBRA
coverage. It could also apply to the loss of student or private insurance. HIPAA special enrollment events
permit employees to add coverage for other dependents at the same time.
Although retroactive elections are typically prohibited, under HIPAA if a newborn or child who is adopted
or placed for adoption is enrolled during the special enrollment period, the child can have retroactive
coverage to the date of birth, adoption, or placement for adoption.
COBRA Qualifying Events
A plan may permit an individual to make changes due to COBRA qualifying events. This would allow an
individual who went part-time, lost benefit eligibility and thus elected COBRA, to increase his or her salary
reductions to pay the increased COBRA cost. This would only be permissible if the individual lost health
plan eligibility but not cafeteria plan eligibility. An individual whose child elected COBRA after reaching
age 26 could also make a mid-year election change to increase pre-tax deductions to pay for the
coverage for the rest of the taxable year.
Judgments, Decrees, and Orders
A plan may allow election changes due to a judgment, decree, or court order, including qualified medical
child support orders (QMCSOs). Plan sponsors are not required to allow this change, but not doing so
would create a legal conflict if the plan documents and court order are at odds. This exception allows
employees to enroll a child in coverage or drop a child from coverage, as ordered by the court. This
exception does not include voluntary changes in health coverage between a child’s parents.
Medicare or Medicaid Entitlement
A plan may allow employees to drop or reduce coverage for themselves, their spouse, or dependents,
when any of those covered individuals gain Medicare or Medicaid entitlement. If an employee drops
coverage under the cafeteria plan for himself or herself, he or she should consider the impact on their
covered spouse’s or dependents’ eligibility under their group plan.
FMLA Leave of Absence
A plan may allow election changes due to leaves of absence under FMLA. FMLA requires covered
employers to permit eligible employees to take a certain amount of unpaid job-protected leave. An
employer must maintain coverage under any group plan during FMLA leave at the level and under the
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conditions that would have been met if the individual had not gone on leave. However, a plan may allow
an employee to revoke or continue coverage, or discontinue employee contributions. Upon return from
leave, the employee has the right to have coverage reinstated if their coverage was terminated during the
leave (for example, for failure to pay premiums). To pay for the continued coverage the employee may
prepay, make ongoing payments, or make catch-up contributions.
Pre-Tax HSA Contributions
Employees may make changes to HSA contributions through pre-tax salary reductions at any time during
the year, as long as the change is effective before the salary to which the change applies becomes
available to the employee.
Reduction of Hours
One of the newest allowed events (beginning September 18, 2014), a plan may allow a participant whose
hours are reduced below 30 hours a week as a result of a change in employment status to drop his or her
employer-sponsored health coverage mid-year, regardless of whether the hour reduction caused a
change in the employee’s eligibility status. The IRS gave two conditions that must be met:
1. The employee has been in an employment status under which the employee was reasonably
expected to average at least 30 hours of service per week and there is a change in that
employee's status so that the employee will reasonably be expected to average less than 30
hours of service per week after the change, even if that reduction does not result in the employee
ceasing to be eligible under the group health plan; and
2. The revocation of the election of coverage under the group health plan corresponds to the
intended enrollment of the employee, and any related individuals who cease coverage due to the
revocation, in another plan that provides minimum essential coverage 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.
This would allow an employee, otherwise locked into coverage due to his or her employer’s use of the
ACA’s measurement and stability period, to drop coverage during a stability period. Because this is a new
optional event, employers that wish to provide the opportunity to employees should amend their plans.
Exchange or Marketplace Enrollment
Another change under the ACA, the Exchange/Marketplace enrollment event permits plans to allow
participants who are eligible to enroll in Exchange/Marketplace coverage during a special enrollment
period to drop employer-sponsored health coverage mid-year, so long as the employee intends to enroll
in Exchange/Marketplace coverage. The employer only has to obtain a reasonable representation from
the employee that he or she intended to enroll on the Exchange. The following conditions must be met for
this change:
1. The employee is eligible for a special enrollment period to enroll in a qualified health plan through
an Exchange/Marketplace pursuant to guidance issued by the Department of Health and Human
Services and any other applicable guidance, or the employee seeks to enroll in a qualified health
plan through an Exchange/Marketplace during the Marketplace's annual open enrollment period;
and
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2. The revocation of the election of coverage under the group health plan corresponds to the
intended enrollment of the employee and any related individuals who cease coverage due to the
revocation in a qualified health plan through an Exchange/Marketplace for new coverage that is
effective beginning no later than the day immediately following the last day of the original
coverage that is revoked.
Because this is a new optional event, employers that wish to provide the opportunity to employees should
amend their plans.
6/29/2015
This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.
9 ©2015 United Benefit Advisors, LLC. All rights reserved.
Cafeteria Plans:
Change in Status and Changing
Employee Elections
Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for
expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable
benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance.
Employees are given the opportunity to select the benefits they want, just like an individual standing in the
cafeteria line at lunch.
Only certain benefits can be offered through a cafeteria plan: (1) coverage under an accident or health
plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-
insured medical reimbursement plans, dental, vision, and more); (2) dependent care assistance benefits
or DCAPs; (3) group term life insurance; (4) paid time off, which allows employees the opportunity to buy
or sell paid time off days; (5) 401(k) contributions; (6) adoption assistance benefits; and (7) health savings
accounts or HSAs under IRS Code Section 223.
Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that
you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-
employees, transportation and other fringe benefits, long-term care, and health reimbursement
arrangements (unless very specific rules are met by providing one in conjunction with a high deductible
health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.
Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or
components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also
affected aspects of cafeteria plan administration.
Making Election Changes
Employees are allowed to choose the benefits they want by making elections. Only the employee can
make elections, but they can make choices that cover other individuals such as spouses or dependents.
Employees must be considered eligible by the plan to make elections. Elections, with an exception for
new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be
changed during the plan year, unless a permitted change in status occurs. There is an exception for
mandatory two-year elections relating to dental or vision plans that meet certain requirements.
Plans may allow participants to change elections based on the following changes in status:
Change in marital status
Change in the number of dependents
Change in employment status
A dependent satisfying or ceasing to satisfy dependent eligibility requirements
Change in residence
Commencement or termination of adoption proceedings
Plans may also allow participants to change elections based on the following changes that are not a
change in status but nonetheless can trigger an election change:
Significant cost changes
Significant curtailment (or reduction) of coverage
Addition or improvement of benefit package option
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Change in coverage of spouse or dependent under another employer plan
Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
Changes in 401(k) contributions
HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
COBRA qualifying event
Judgment, decrees, or orders
Entitlement to Medicare or Medicaid
Family Medical Leave Act (FMLA) leave
Pre-tax health savings account (HSA) contributions
Reduction of hours (new under the ACA)
Exchange/Marketplace enrollment (new under the ACA)
Together, the change in status events and other recognized changes are considered “permitted election
change events.”
Common changes that do not constitute a permitted election change event are: a provider leaving a
network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a
legal separation, commencement of a domestic partner relationship, or a change in financial condition.
There are some events not in the regulations that could allow an individual to make a mid-year election
change, such as a mistake by the employer or employee, or needing to change elections in order to pass
nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing
evidence that the mistake has been made. For instance, an individual might accidentally sign up for family
coverage when they are single with no children, or an employer might withhold $100 dollars per pay
period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.
Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts
in the middle of the plan year, so long as automatic election language is in the plan documents. An
“insignificant” amount is considered one percent or less.
Plans should consider which change in status events to allow, how to track change in status requests,
and the time limit to impose on employees who wish to make an election.
Cafeteria plans are not required to allow employees to change their elections, but plans that do allow
changes must follow IRS requirements. These requirements include consistency, plan document
allowance, documentation, and timing of the election change.
Consistency. In order to make the change an employee must have experienced the specified change or
event, and the requested change must be consistent with the change or event.
Example: Susan is a full-time benefits eligible employee of The Oyster House. Susan becomes
Medicare eligible and wishes to make changes to her cafeteria plan elections. If the plan allows, she
would be permitted to make changes to any benefit that provides accident or health coverage,
including a health FSA. She would not be permitted to make changes to other elections such as
dependent care, paid time off, or group life insurance. There is no consistency between Medicare
eligibility and paid time off needs.
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The consistency rules require that an election change is due to and corresponds with the change in status
that effects eligibility for coverage under the plan. There are relaxed consistency rules for group term life
insurance, dismemberment and disability coverage. There are also special consistency rules for election
changes when DCAP or adoption assistance plan expenses are affected, a limitation on changes due to
divorce, death of a spouse or dependent, or a dependent’s loss of eligibility, and a limitation on election
changes decreasing or ending coverage because a new family member has become eligible.
DCAP elections cannot be changed because an unemployed individual enrolls in educational courses. If
a medical plan automatically terminates dependents when they reach age 26, there would be no
qualifying event because no changes would need to be made by the employee.
Overview of Consistent Changes
Type of Event Permitted Change
Change in status event (marital status, number of
dependents, employment status, dependent
eligibility change, change in residence,
commencement or termination of adoption
proceedings)
May make election changes for all qualified
benefits
Significant cost change May make changes to all qualified benefits other
than health FSAs
Significant coverage curtailment or reduction May make changes to all qualified benefits other
than health FSAs
Addition or significant improvement of benefit May make changes to all qualified benefits other
than health FSAs
Change in coverage under another employer plan May make changes to all qualified benefits other
than health FSAs
Involuntary loss of health coverage (such as
coverage sponsored by the government or
educational institution)
May make election changes for any group health
plans
HIPAA special enrollment Must allow employee to make changes for any
group health plans that are not an excepted
benefit under HIPAA
COBRA qualifying event May make election changes for any group health
plans subject to COBRA (this includes FSAs)
Judgments, decrees, or orders May make election changes for accident or health
coverage (this includes FSAs)
Medicare/Medicaid entitlement May make election changes for any accident or
health coverage
FMLA leave of absence May make election changes to accident or health
plan coverage, including health FSAs.
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Type of Event Permitted Change
Reduction of hours May make changes for group health plans (not
FSAs) that provide minimum essential coverage
under the ACA
Exchange enrollment May make changes for group health plans (not
FSAs) that provide minimum essential coverage
under the ACA (other rules apply)
Plan Documents. If an individual has a permitted election change event and the desired change is
consistent with the event, then it must be determined if the cafeteria plan document recognizes the
permitted election change event. If it does not (or the plan does not allow individuals not already on the
plan to elect benefits mid-year), the election change is not allowed. If the plan recognizes the change
event, not only does the cafeteria plan document have to allow the change, but the plan documents of the
component benefit must allow it as well (such as the underlying plan documents for the group health
plan).
Documentation and Timing. If the individual has a permitted election change event, the desired change
is consistent with the event, and the plan documents allow the change, documentation that all of those
requirements have been met should be made. A signed certification by the employee is sufficient. Under
ERISA, these records should be kept for at least eight years. Employees are permitted to make changes
electronically by self-certifying. The employer should keep electronic records of this change.
Plan administrators should administer election changes involving same-sex spouses in the same manner
that they handle election change requests for individuals with opposite-sex spouses.
Change in Status Events
As mentioned above, plans may allow participants to change elections based on an IRS-specified list of
change in status events.
Change in Marital Status
Both same-sex and opposite-sex marital status changes are qualifying events. Legal separations and the
commencement and termination of a domestic partnership are not. There is a narrow exception if a
domestic partnership changes an individual’s tax status. If a domestic partner qualified as a tax
dependent for health coverage purposes, this could trigger a qualifying event.
Change in the Number of Dependents
The change in a number of dependents can trigger a qualifying change in status event. Birth, adoption, or
placement for adoption will likely trigger a HIPAA special enrollment right, which creates a responsibility
for plans subject to HIPAA (discussed later). “Dependent” refers to tax dependent under IRS Code
Section 152, with an exception for accident and health coverage, under which a child to whom IRS Code
section 152(e) applies is treated as a dependent of both parents. IRS Code Section 152(e) involves rules
for divorced parents.
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Change in Employment Status
A change in employment status that affects an individual’s eligibility for a benefit is a permissible change
in status event. The following events are a change in status of an employee (or their spouse, or
dependent):
Termination or beginning of employment
Strike or lockout
Return from or beginning of an unpaid leave of absence
Change in worksite
If benefits eligibility is dependent upon employment status, and that status changes (such as a move from
full time to part-time), this can be a qualifying event. However, unless a plan-allowed “reduction in hours
or cost change event” (discussed below) occurs when an individual becomes part-time but is still benefits
eligible, it is not a qualifying event.
A Dependent Satisfying or Ceasing to Satisfy Dependent Eligibility Requirements
If a tax dependent satisfies or ceases to satisfy the requirement for coverage due to aging out, changing
student status, marriage, etc., this is a qualifying event. Practically speaking, due to the ACA’s
requirement to provide health coverage to children under the age of 26, marriage and student status
changes are unlikely to trigger a qualifying event for health coverage. This might not be the case for other
benefits such as vision or dental coverage.
Change in Residence
A change in residence that affects eligibility for coverage would be a qualifying event. The move must result
in a loss of eligibility for coverage. FSAs cannot be changed due to a residence change. If, for example, an
individual was covered by an HMO and moved out of the network of providers, the employee could be
permitted to drop coverage (if no other coverage was offered by the employer) or elect different coverage.
Keep in mind that a carrier’s network may have providers at the employee’s residence or work location.
Commencement or Termination of Adoption Proceedings
For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination
of an adoption proceeding is a qualifying event.
Other Events that Allow a Change in Elections
Outside of the change in status events, the IRS recognizes other events that would allow a plan to permit
an individual to make an election change.
Significant Cost Changes
A plan may permit individuals to make election changes due to significant cost changes. For this rule to
apply the following must be met:
A benefit plan must be an eligible qualified benefit other than a health FSA.
The cafeteria plan document must include language regarding significant cost changes.
The cost-change being passed on in the form of changed participant contributions must be
significant.
A determination must be made whether any alternative coverage is similar.
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Employees would only be permitted to revoke or drop coverage due to a cost change if no similar
coverage option is available, which is defined as “coverage of the same category of benefits for the same
individuals.” If an employer offers two medical plans, one that is expensive and one that is inexpensive,
regardless of the cost change, an employee would only be permitted to switch to the other plan, not
revoke coverage entirely. This rule would apply even if the two medical plans were very different, such as
an HMO versus a high deductible health plan (HDHP). There is no definition of what constitutes a
“significant” cost change, but the change can be employer or employee initiated.
Significant Coverage Curtailment or Reduction
Plans may allow employees to make mid-year election changes due to a significant coverage curtailment,
with or without a loss of coverage. The definition of coverage curtailment is not entirely clear, and the
regulations state that there is a significant curtailment of coverage “only if there is an overall reduction in
coverage provided under the plan so as to constitute reduced coverage generally.”
In the event of coverage curtailment without a loss of coverage, a participant is only permitted to revoke
his or her election and elect similar coverage. If there is a loss of coverage, participants may only revoke
elections if “no similar benefits package” is available. Again, if an employer offered two medical plans, the
employee would only be permitted to elect the second plan.
Addition or Significant Improvement of Benefit Package Option
In the event an employer adds a new benefit package option or other coverage option, or if an existing
option is significantly improved, eligible employees (including those who had not previously made an
election) may revoke their election and make new elections on a prospective basis for coverage under the
new plan or option. The term “significant improvement of coverage” is not defined but generally an
increase in medical providers available in network is an improvement. If only one component of the
cafeteria plan has an addition, changes can only be made to the election of that component.
Change in Coverage under Another Employer Plan
A cafeteria plan my permit a participant to make election changes due to a change in coverage under
another employer plan. This would be triggered by one of two situations:
The other employer plan allows a permissible election change.
The other employer plan has a different period of coverage.
Example: Susan and John each have medical coverage from their individual employers. Susan’s
employer has a fiscal year plan; John’s employer has a calendar year plan. Susan and John are
married and make no changes to their elections at that time. Six months after getting married they
determine that they would like to be on the same plan. Shortly thereafter, Susan’s plan has open
enrollment. She drops her employer coverage during open enrollment, thus triggering a permissible
change that would allow John to enroll her in his employer’s plan.
Loss of Group Health Coverage
A plan may allow participants to make changes due to the loss of coverage under other group health
coverage, such as a state children’s health insurance program (CHIP), a medical program of an Indian
Tribal government, a state health benefits risk pool, or a foreign government group health plan. This
change applies only to the loss of coverage, not to a gain. Loss of coverage from an educational
institution would also qualify.
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HIPAA Special Enrollment Rights
Group health plans subject to HIPAA must provide special enrollment for certain individuals. Plans are not
required to allow pre-tax election changes for HIPAA special enrollment events; however the
administrative overhead of handling these changes on an after-tax basis is often unduly burdensome.
HIPAA special enrollment rights overlap with other change in status events. The other events are
permissive, but HIPAA enrollment events require the ability to make health coverage changes. HIPAA
special enrollment rights also allow a limited ability to elect retroactive coverage on a pre-tax basis.
HIPAA special enrollment events also obligate the employer to offer a special enrollment period of a
minimum specific duration, typically 30 or 60 days depending on the event.
HIPAA special enrollment events include the loss of health coverage, acquisition of a new dependent (by
marriage, birth, adoption, or placement for adoption) and loss of Medicaid or CHIP coverage.
Enrollment due to loss of coverage under a group health plan means loss of eligibility for non-COBRA
coverage, termination of employer contributions toward non-COBRA coverage, or exhaustion of COBRA
coverage. It could also apply to the loss of student or private insurance. HIPAA special enrollment events
permit employees to add coverage for other dependents at the same time.
Although retroactive elections are typically prohibited, under HIPAA if a newborn or child who is adopted
or placed for adoption is enrolled during the special enrollment period, the child can have retroactive
coverage to the date of birth, adoption, or placement for adoption.
COBRA Qualifying Events
A plan may permit an individual to make changes due to COBRA qualifying events. This would allow an
individual who went part-time, lost benefit eligibility and thus elected COBRA, to increase his or her salary
reductions to pay the increased COBRA cost. This would only be permissible if the individual lost health
plan eligibility but not cafeteria plan eligibility. An individual whose child elected COBRA after reaching
age 26 could also make a mid-year election change to increase pre-tax deductions to pay for the
coverage for the rest of the taxable year.
Judgments, Decrees, and Orders
A plan may allow election changes due to a judgment, decree, or court order, including qualified medical
child support orders (QMCSOs). Plan sponsors are not required to allow this change, but not doing so
would create a legal conflict if the plan documents and court order are at odds. This exception allows
employees to enroll a child in coverage or drop a child from coverage, as ordered by the court. This
exception does not include voluntary changes in health coverage between a child’s parents.
Medicare or Medicaid Entitlement
A plan may allow employees to drop or reduce coverage for themselves, their spouse, or dependents,
when any of those covered individuals gain Medicare or Medicaid entitlement. If an employee drops
coverage under the cafeteria plan for himself or herself, he or she should consider the impact on their
covered spouse’s or dependents’ eligibility under their group plan.
FMLA Leave of Absence
A plan may allow election changes due to leaves of absence under FMLA. FMLA requires covered
employers to permit eligible employees to take a certain amount of unpaid job-protected leave. An
employer must maintain coverage under any group plan during FMLA leave at the level and under the
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conditions that would have been met if the individual had not gone on leave. However, a plan may allow
an employee to revoke or continue coverage, or discontinue employee contributions. Upon return from
leave, the employee has the right to have coverage reinstated if their coverage was terminated during the
leave (for example, for failure to pay premiums). To pay for the continued coverage the employee may
prepay, make ongoing payments, or make catch-up contributions.
Pre-Tax HSA Contributions
Employees may make changes to HSA contributions through pre-tax salary reductions at any time during
the year, as long as the change is effective before the salary to which the change applies becomes
available to the employee.
Reduction of Hours
One of the newest allowed events (beginning September 18, 2014), a plan may allow a participant whose
hours are reduced below 30 hours a week as a result of a change in employment status to drop his or her
employer-sponsored health coverage mid-year, regardless of whether the hour reduction caused a
change in the employee’s eligibility status. The IRS gave two conditions that must be met:
1. The employee has been in an employment status under which the employee was reasonably
expected to average at least 30 hours of service per week and there is a change in that
employee's status so that the employee will reasonably be expected to average less than 30
hours of service per week after the change, even if that reduction does not result in the employee
ceasing to be eligible under the group health plan; and
2. The revocation of the election of coverage under the group health plan corresponds to the
intended enrollment of the employee, and any related individuals who cease coverage due to the
revocation, in another plan that provides minimum essential coverage 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.
This would allow an employee, otherwise locked into coverage due to his or her employer’s use of the
ACA’s measurement and stability period, to drop coverage during a stability period. Because this is a new
optional event, employers that wish to provide the opportunity to employees should amend their plans.
Exchange or Marketplace Enrollment
Another change under the ACA, the Exchange/Marketplace enrollment event permits plans to allow
participants who are eligible to enroll in Exchange/Marketplace coverage during a special enrollment
period to drop employer-sponsored health coverage mid-year, so long as the employee intends to enroll
in Exchange/Marketplace coverage. The employer only has to obtain a reasonable representation from
the employee that he or she intended to enroll on the Exchange. The following conditions must be met for
this change:
1. The employee is eligible for a special enrollment period to enroll in a qualified health plan through
an Exchange/Marketplace pursuant to guidance issued by the Department of Health and Human
Services and any other applicable guidance, or the employee seeks to enroll in a qualified health
plan through an Exchange/Marketplace during the Marketplace's annual open enrollment period;
and
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2. The revocation of the election of coverage under the group health plan corresponds to the
intended enrollment of the employee and any related individuals who cease coverage due to the
revocation in a qualified health plan through an Exchange/Marketplace for new coverage that is
effective beginning no later than the day immediately following the last day of the original
coverage that is revoked.
Because this is a new optional event, employers that wish to provide the opportunity to employees should
amend their plans.
6/29/2015
This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.
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IRS Releases Draft 2015 Forms for 6055/6056 Reporting
Background
Under the Patient Protection and Affordable Care Act (ACA), individuals are required to have health
insurance while applicable large employers (ALEs) are required to offer health benefits to their full-time
employees. In order for the Internal Revenue Service (IRS) to verify that (1) individuals have the required
minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3)
ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time
or full-time equivalent employees and insurers will be required to report on the health coverage they offer.
Reporting will first be due early in 2016, based on coverage in 2015. All reporting will be for the calendar
year, even for non-calendar year plans. Mid-size employers (those with 50 to 99 employees) will report in
2016, despite being in a period of transition relief in regard to having to offer coverage. The reporting
requirements are in Sections 6055 and 6056 of the ACA.
Draft 2015 Forms
The IRS has issued draft 2015 forms, which include a few changes from the 2014 forms. The biggest
difference between the 2014 and 2015 versions are on Form 1095-C, which in 2015 will likely include
(assuming the draft forms are finalized as they currently appear) a “plan start month” field, allowing a filer
to indicate the first month of the ALE’s plan year. The draft instructions indicate this would be optional for
2015. ALEs could use the 2014 format instead of filling out the information, or in the alternative may either
fill out the first month of the plan year or fill in “00” rather than the actual first month. Beginning in 2016
this field would be required. Currently it is unclear if employers can use the 2014 forms if they choose to
use the 2014 format, or if they should use the 2015 format and leave the field blank.
In 2016 it is anticipated that for Form 1095-C, there will be two new indicator codes for Line 14. These
codes would indicate if an offer of coverage to an employee’s spouse is a conditional offer.
Continuation sheets have been added to Part III of Form 1095-C and Part IV of Form 1095-B.
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Draft 1094-C (Transmittal/cover sheet)
Draft 1095-C (Reports to individuals and IRS on coverage offered)
Draft 1094-B (Transmittal/cover sheet)
Draft 1095-B (Report to individuals and the IRS on MEC)
A more detailed overview of employer reporting requirements can be found in the UBA documents "IRS
Releases Final Reporting Regulations" and "IRS Issues Final Forms and Instructions for Employer and
Insurer Reporting Forms."
Which forms for self-funded plans?
As a refresher, employers with fewer than 50 employees, with a self-funded plan will complete Forms
1094-B and 1095-B for all individuals that participated in the plan during the year. Employers with more
than 50 employees and a self-funded plan will first have to determine if they covered non-employees
(such as former employees on COBRA, retirees, and board members). If they covered these non-
employees on their plan, they will complete Forms 1094-B and 1095-B for non-employee participants,
and then complete Forms 1094-C and 1095-C parts I, II, and III for all full-time employees (regardless of
enrollment or eligibility) and any other employees that participated. However, if they do not cover the
above-listed non-employees, they will only complete Forms 1094-C and 1095-C parts I, II and III for all
full-time employees (regardless of enrollment or eligibility) and any other employees that participated in
the plan year.
Which forms for fully-insured plans?
An employer with fewer than 50 employees that offers a fully-insured plan will have no employer
reporting, and the insurer will submit Forms 1094-B and 1095-B.
An employer with more than 50 employees and a fully-insured plan will complete Forms 1094-C and
1095-C (Parts I and II) for all full-time employees (regardless of enrollment or eligibility) and any other
employees that participated in the plan during the calendar year.
6/22/2015
This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.
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Summary of Benefits and Coverage (SBC)
Frequently Asked Questions
Updated June 2015
General Information
Q1. What is a Summary of Benefits and Coverage?
A1. A Summary of Benefits and Coverage (SBC) is four-page (double-sided) communication required
by the federal government. It must contain specific information, in a specific order and with a
minimum size type, about a group health benefit’s coverage and limitations.
Q2. Who must provide an SBC?
A2. For fully insured plans, the insurer is responsible for providing the SBC to the plan administrator
(usually this is the employer). The plan administrator and the insurer are both responsible for
providing the SBC to participants, although only one of them actually has to do this.
For self-funded plans, the plan administrator is responsible for providing the SBC to participants.
Assistance may be available from the plan administrator’s TPA, advisor, etc., but the plan
administrator is ultimately responsible. (The plan administrator is generally the employer, not the
claims administrator.)
Q3. When is an SBC required?
A3. An SBC is required whenever application or open enrollment materials are provided to new hires or
current employees. If no application or open enrollment materials are given, an SBC must be
provided when the person can first enroll.
Q4. Are any plans exempt from this requirement?
A4. No. This requirement applies to all employers – private, government, and not-for-profit, fully insured
and self-funded, grandfathered and non-grandfathered. There is no minimum employer size to have
this obligation.
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However, there is a delayed effective date for closed blocks of insured business. An SBC does not
need to be provided unless the Department of Labor issues additional instructions if:
The insured product is no longer being actively marketed;
The health insurer stopped actively marketing the product prior to September 23, 2012; and
The health insurer has never provided an SBC with respect to the insured product.
In addition, expatriate plans do not have to provide SBCs until the 2016 plan year. (An expatriate
plan is one designed to cover employees who are living overseas.)
Q5. What types of plans must provide SBCs?
A5. All group health plans must provide SBCs unless they are specifically exempted. Exempted plans
include:
Standalone dental and vision
Health FSAs unless the plan is not an “excepted benefit” (see Q&A 16 for details)
Retiree only plans
Medicare supplement (Medicare Advantage)
Hospital indemnity and specified diseases
Long-term care
Accident and disability
Q6. Are SBCs needed for wellness programs, EAPs and HRAs?
A6. In certain circumstances, yes. See Q&As 12 - 14.
Completing the SBC
Q7. What information must be included in an SBC?
A7. An SBC must contain:
Uniform definitions of standard insurance terms and medical terms (provided in the glossary)
A description of the coverage for certain categories of benefits
The exceptions, reductions, and limitations of the coverage
The cost-sharing provisions of the coverage (deductible, coinsurance, and copayment
obligations)
A statement as to whether the plan offers minimum essential and minimum value coverage (until
the template, for use beginning in 2017, is released, this information can be provided in a separate
letter)
The renewability and continuation of coverage provisions
Coverage examples
A statement that the SBC is only a summary and that the plan document, policy, certificate, or
contract of insurance should be consulted to determine the governing contractual provisions of
the coverage
Contact information for questions and obtaining a copy of the plan document or the insurance
policy, certificate, or contract of insurance (such as a telephone number for customer service
and an Internet address for obtaining a copy of the plan document or the insurance policy,
certificate, or contract of insurance)
For plans and issuers that maintain one or more networks of providers, an Internet address (or
similar contact information) for obtaining a list of network providers
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For plans and issuers that use a formulary in providing prescription drug coverage, an Internet
address (or similar contact information) for obtaining information on prescription drug coverage
An Internet address for obtaining the uniform glossary, a contact phone number to obtain a
paper copy of the uniform glossary, and a disclosure that paper copies are available
Qualified health plan issuers must disclose whether abortion services are covered or excluded,
and whether coverage is limited to excepted abortion services, for plans sold through an
individual market Exchange. Until the template and associated documents are finalized and
applicable, individual market issuers may adopt reasonable wording and placement of the
disclosure on the SBC.
Important: The agencies have issued very specific instructions on how to complete the SBC. If
you are completing an SBC, you need to read and follow the instructions. The instructions are
available at http://www.dol.gov/ebsa/pdf/SBCInstructionsGroup.pdf.
Since these instructions were issued, the DOL has made a few liberalizations. They are:
If a plan’s terms deviate significantly from the template or instructions, you may modify the
template/entries to the extent needed to be accurate.
You only need to include the footer on the first and last page and the header only needs to be
on the first page.
When completing the header, either the company name, any insurer name or the plan name
can be listed first.
If there are multiple plan options, list the name commonly used; if there is no common name, a
generic name is fine.
The requirement to provide an Internet address to obtain an actual individual underlying policy
or group certificate do not apply to self-insured plans. Related obligations of availability of the
documents under ERISA and the Department of Labor claims procedures still apply to self-
funded plans. The government “encourages issuers” to make all relevant policy documents
easily accessible.
In addition, for 2014 and 2015 employers and carriers may address the prohibition on annual dollar
limits for essential health benefits by either:
Deleting the row that asks about annual limits; or
Completing the annual limits question with “no” and stating in the “Why It Matters” column: “The
chart starting on page 2 describes any limits on what the plan will pay for specific covered
services, such as office visits.”
A blank SBC to use with 2014 and 2015 plan years is at
http://www.dol.gov/ebsa/correctedsbctemplate2.doc.
A sample completed SBC for 2014 and 2015 is at
http://www.dol.gov/ebsa/pdf/CorrectedSampleCompletedSBC2.pdf.
Q8. What changes have been made to the SBC for 2015, 2016, or 2017?
A8. There are no changes for 2015 to either the template or the examples (including costs) that must be
completed in the SBC, to the glossary that must accompany the SBC or to the SBC calculator. A
June 2015 Final Rule announced that a new template and associated documents will be finalized
by January 2016, and will apply to coverage that will renew or begin on the first day of the plan year
(or policy year) that begins on after January 1, 2017.
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Q9. Do I need a separate SBC for each benefit option?
A9. You do not need a separate SBC for each benefit option as long as you can illustrate multiple
options clearly. So, for example, you can show multiple coverage tiers and
deductible/coinsurance/copay options on one SBC if the balance of the coverage is very similar. If
you prefer to create a separate SBC for each tier, PPO option, etc., that is fine, too.
Q10. How do I handle dental benefits?
A10. Stand-alone dental benefits (those that are elected separately from medical) do not need an SBC.
You would list “Dental Care (Adult)” as a “Service Your Plan Does Not Cover” since it is not
covered under the medical plan that the SBC is describing.
Integrated dental benefits (those that are elected as part of medical) would be listed as “Dental
Care (Adult)” under “Other Covered Services,” with no additional detail given.
Q11. How do I handle vision benefits?
A11. Stand-alone vision benefits (those that are elected separately from medical) do not need an SBC.
You would list “Routine eye care (Adult)” as a “Service Your Plan Does Not Cover” since it is not
covered under the medical plan that the SBC is describing.
Integrated vision benefits (those that are elected as part of medical) would be listed as “Routine eye
care (Adult)” under “Other Covered Services,” with no additional detail given.
Q12. How do I handle an HRA?
A12. Beginning in 2014, most HRAs will need to be integrated with a medical plan. If the HRA is
integrated with the medical plan, you may include the amount of the employer contributions to the
HRA to the extent they are available to reduce deductibles, etc. and explain the HRA contribution is
available for cost sharing.
A standalone HRA will need an SBC. The employer should complete the SBC to reflect the HRA’s
coverage (which means that many sections will be completed as “not applicable”).
Q13. How do I handle an EAP?
A13. If the EAP is a group health plan, it will need an SBC. It may be possible to note those services on
the medical SBC (see the sample Coverage Example for diabetes in the SBC instructions for a
possible approach); if the services are not part of the health plan or are very complex, the employer
should complete the SBC to reflect the EAP’s coverage (which means that many sections will be
completed as “not applicable”).
Note: Because of the variety of services provided by EAPs, it is not possible to say whether all
EAPs are or are not “group health plans.” In general, the more medical care that is provided by the
EAP, the likelier it is that the EAP is a group health plan. So, for example, an EAP that only
provides education or referrals would not be a group health plan. An EAP that provides significant
direct counseling probably is a group health plan.
Q14. How do I handle a wellness program?
A14. A wellness program that is a group health plan will need to provide an SBC. If the wellness program
is a part of the health plan you may include a brief description of those services and/or incentives
on the medical SBC. See the sample Coverage Example for diabetes in the SBC instructions for a
possible approach if completion of the program reduces the deductible, coinsurance or copays. If a
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wellness program simply affects the health plan premium, it will not affect the medical plan SBC
(unless the SBC includes the premium) and a separate SBC is not needed.
Note: Because of the variety of approaches taken by wellness programs, it is not possible to say
whether all wellness programs are or are not “group health plans.” In general, the more medical
services the program provides, the greater the chance it is a group health plan. Whether a health goal
is involved also matters. So, for example, if the reward for completing a health risk assessment is a
gift card, and no action is taken based on the person’s HRA results, the program is not a group health
plan and no SBC is needed. If the wellness program provides medical care (e.g., special services for
diabetics), it is likely that the wellness program is a group health plan.
Q15. How do I handle an HSA?
A15. HSAs are not considered “group health plans” and do not need an SBC (although the underlying
high deductible health plan will need one). Employers may include the amount of any employer
contribution to an HSA to the extent they are available to reduce deductibles, etc. and explain the
HSA contribution is available for cost sharing.
Q16. How do I handle an FSA?
A16. An SBC is not needed for an FSA if the health FSA is an “excepted benefit.” To be an “excepted
benefit” the employee must also be eligible for group medical coverage through the employer, and
any employer contribution may not exceed two times the employee’s health FSA contribution plus
$500. If an employer makes any health FSA contributions, it may include the amount of any
employer contribution to the health FSA to the extent they are available to reduce deductibles, etc.
and explain the FSA contribution is available for cost sharing.
Q17. How do I handle carve-out benefits (such as prescription drug or behavioral health)?
A17. Through at least 2015, fully insured plans have several options:
They can arrange with one insurer to include the information from the other insurer.
They can combine the two into a single SBC themselves.
They can provide each SBC, with a note advising participants that coverage is provided by
more than one carrier, the SBCs should be read together, and the plan administrator can be
contacted for help with understanding how the coverages work together; plan administrator
contact information must be provided.
Self-funded plans will need to do their best to combine the multiple coverages into a single SBC.
Q18. Do I need to include information on premiums/contributions?
A18. Premium and contribution information is not required.
Q19. Can I include information on premiums/contributions?
A19. Yes, but it must be provided at the end of the SBC.
Q20. If the plan is grandfathered, do I need to state this?
A20. No, this disclosure is not needed on the SBC. If you wish to include a statement that the plan is
grandfathered you can, but it must be at the end of the SBC.
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Q21. Can I simply reference the SPD in the SBC?
A21. You cannot substitute a reference to the SPD for any required information. You can create a
footnote advising the reader to consult the SPD or certificate for more information, including a
reference to particular page numbers for more information about a specific item.
Q22. Can I change the format or order of the SBC?
A22. Generally, no. You can widen columns.
Q23. Can I reword the “Why It Matters” responses?
A23. No.
Q24. Must the SBC be in color?
A24. No, it can be in color or grayscale.
Q25. Why is this so inflexible?
A25. The purpose of the SBC is to make it easier for employees to compare coverage options. The
regulatory agencies believe that consistent presentation will make it easier for employees to do
side-by-side comparisons.
Q26. How often do I need to update the SBC?
A26. You only need to update the SBC at renewal/open enrollment unless you make a material change
during the year. In that case, at least 60 days before the effective date of the change, you must
either distribute an updated SBC or provide written notice of the change. Distributing the revised
SBC or notice will qualify as a summary of material modifications (SMM) for ERISA purposes.
Q27. What is a material change?
A27. A material change is something addressed in the SBC that the average participant would consider
important, like a change in deductible, coverage for a new benefit or a whole new network. It can be
an increase in benefits or a reduction. Regulatory changes normally will not be considered a
material change that would require a mid-year notice or reissuance of the SBC.
Completing the Coverage Examples
Q28. How do I prepare the coverage examples?
A28. The coverage examples are based on information provided by the regulatory agencies regarding
the projected dates of service and the anticipated cost of certain prescribed services (maternity and
care of diabetes; the cost of services in the examples are the same for 2013, 2014 and 2015). The
plan’s actual cost sharing (deductible, co-pays and coinsurance) and any applicable exclusions or
limits should be used to illustrate the “Patient pays” entries.
Q29. If I illustrate several benefit options in one SBC, what do I base the comparison on?
A29. You should illustrate self-only coverage and clearly state on the SBC that self-only coverage is
being illustrated.
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Q30. Has the government provided any assistance with these calculations?
A30. HHS/CMS has posted a calculator that can be used by employers to complete the comparison.
Employers are not required to use this calculator.
The calculator and instructions are available at Other Resources - Centers for Medicare & Medicaid
Services (scroll down to Summary of Benefits and Uniform Coverage).
Q31. The costs we are supposed to use in the examples are much more (or less) than we typically
see. Can/should I use my plan’s data?
A31. No. Employers must use the HHS-supplied costs, even though they may not reflect their
plan’s experience. (The idea is that if costs in the examples are uniform, employees will be better
able to understand how cost sharing will work under the options they are considering.)
Q32. I am worried that my employees will think the amounts shown in the examples are what the
plan and they will pay if they actually have a baby or are treated for diabetes.
A32. The Coverage Examples sheet states in large print that it is not a cost estimator, and test groups
apparently understood this. In any event, the agencies have considered the issue and believe this
approach is best.
Providing the Glossary
Q33. What is the glossary?
A33. The glossary is a required, standard glossary of 44 terms frequently used with group health plans.
Q34. Can I alter it to better fit my situation?
A34. No. If there is a significant difference between the plan’s and the glossary’s terms, you can address
this on the SBC (presumably through a footnote). To reduce participant confusion, it may make
sense to revise your plan’s terminology to match the glossary terminology, when possible.
Q35. Must I provide copies of the glossary with the SBC?
A35. No, but you must:
Tell participants at the bottom of the first page of the SBC where the glossary is posted (it can
be on the employer’s website, the insurer’s website, or an agency website). The government
version is posted at http://www.dol.gov/ebsa/pdf/SBCUniformGlossary.pdf.
Mail a paper copy within seven business days after receiving a request for a paper glossary.
Distributing the SBC
Q36. Who is responsible for providing an SBC?
A36. The insurer is responsible for providing an SBC to the employer within seven days after the
employer completes an application. The insurer and the plan administrator are each responsible for
providing the SBC to participants, but only one of them needs to actually do it – they need to work
out who will do the distribution. For self-funded plans, the plan administrator is responsible for
providing the SBC. The plan administrator can hire others, like its TPA, to help, but the plan
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administrator is ultimately responsible. If an entity required to provide an SBC enters into a binding
contract with another entity to provide the SBC the following conditions must be met:
The first entity must monitor the performance of the contract.
The first entity must correct any noncompliance of the contract of which it becomes aware.
If the first entity becomes aware of non-compliance that it cannot correct, it communicates with
the individuals affected and takes significant steps to correct the non-compliance.
Q37. Who must receive an SBC, and when?
A37. SBCs must be provided:
At open enrollment
- The SBC must be included with the open enrollment materials.
- Only the SBC for the option the employee is currently enrolled in must be provided (if you
would rather provide all SBCs instead, you may).
- If the employee asks for the SBC for other options, those SBCs must be provided within
seven business days.
- SBCs must be provided to current employees, retirees (unless they are enrolled in a
retiree-only plan) and COBRA beneficiaries.
At renewal if there is no open enrollment
- If the prior year’s election simply carries over, the SBC for the employee’s current coverage
must be provided at least 30 days before the new plan or policy year. (If the plan or policy
has not been reissued or renewed by then, the SBC is due as soon as possible after
renewal/reissue, and in no event later than seven business days after either the new policy
is issued or a written confirmation of an intent to renew is received.)
- If the employee asks for the SBC for other options, those SBCs must be provided within
seven business days.
- SBCs must be provided to current employees, retirees (unless they are enrolled in a
retiree-only plan) and COBRA beneficiaries.
At initial enrollment
- The SBC for all options the employee may choose among must be provided with the
enrollment materials.
- If no enrollment materials are provided, the SBC for all options must be provided by the first
day the new employee may enroll.
At special enrollment
- The SBC for the option the individual is enrolled in must be provided within 90 calendar
days after enrollment as a special enrollee.
- The SBC must be provided within seven business days after a request for the SBC, if
sooner.
With a material mid-year change (see Q&A 27)
- 60 days before the effective date of the change.
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To prevent duplication, if a plan or issuer provides an SBC prior to application for coverage, the
plan or issuer is not required to automatically provide another SBC upon application, if there is no
change to the information required to be in the SBC. If there is a change, then the plan or issuer
must update and provide a current SBC as soon as practicable upon receipt of the application, but
no later than seven days after receipt. Furthermore, if the terms of coverage are still being
negotiated after an application has been filed and SBC information changes, the plan or issuer is
not required to provide an updated SBC until the first day of coverage (unless it is requested, in
which case, the seven days rule applies).
Q38. What does “within seven business days” mean?
A38. The SBC must be postmarked, faxed or emailed by the close of the seventh business day after the
request is received. (A response to a request for a paper copy must be mailed or faxed. If a request
for an SBC is made electronically, the SBC can be provided electronically, with the usual statement
that free paper copies can be requested.)
Q39. Do I need to provide an SBC to covered family members?
A39. A separate SBC does not need to be provided to covered family members unless you are aware
that a family member lives at another address. In that case the person living away needs their own
SBC.
Q40. Can I include the SBC in my SPD?
A40. You may include the SBC in the SPD as long as:
It is prominently displayed – e.g., right after the table of contents or introduction; and
The entire SBC is inserted, without adding any material between its pages or sections or
deleting any part of the SBC.
Q41. Can I provide the SBC electronically?
A41. It depends on the situation.
If enrollment is exclusively online, the SBC can be provided online.
If enrollment is not exclusively online, there are different rules for new enrollees and current
participants.
For new enrollees:
- The SBC must be reasonably accessible (e.g., posted on the employer’s intranet or
website).
- The employee must be notified that the SBC is available, where it is located (with the
Internet address or a link) and that a paper copy is available at no cost, with contact
information to request a paper copy.
For enrolled employees:
- If the employee regularly uses a computer as part of his job the SBC or notice of where the
SBC is posted must be sent to the computer the employee regularly uses, with an
explanation of the significance of the SBC and that a paper copy is available at no cost with
contact information to request a copy.
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- If the employee does not regularly use a computer as part of his job, the SBC may not be
provided electronically.
For enrolled retirees, COBRA participants and special enrollees who do not live with the
employee:
- The person must provide consent to email the SBC/plan materials and provide his email
address.
- If the person does not provide the consent and email address, the SBC may not be
provided electronically.
An individual must always have the option to receive a paper copy upon request.
Q42. Is there sample notification language?
A42. Yes. The agencies have provided sample language (which you may, but are not required to, use).
Availability of Summary Health Information
As an employee, the health benefits available to you represent a significant component of
your compensation package. They also provide important protection for you and your family
in the case of illness or injury.
Your plan offers a series of health coverage options. Choosing a health coverage option is
an important decision. To help you make an informed choice, your plan makes available a
Summary of Benefits and Coverage (SBC), which summarizes important information about
any health coverage option in a standard format, to help you compare across options.
The SBC is available on the web at: www.website.com/SBC. A paper copy is also
available, free of charge, by calling 1-XXX-XXX-XXXX (a toll-free number).
Q43. How may I provide notice that the SBC is available electronically?
A43. The notice that the SBC is available electronically can be mailed (many employers send a postcard)
or emailed (with a “return receipt” feature).
Q44. If I provide SBCs electronically, can I display the SBC on a single web page with scrolling
features, allow sorting by feature, and/or widen columns?
A44. Yes, as long as a paper version with the pages set up as required is available. Columns and rows
may not be deleted unless the agencies specifically allow this (as they have done with deleting the
annual limits row in 2014 and 2015).
Other Languages
Q45. Are there requirements to provide the SBC in languages other than English?
A45. Yes. Similar to the requirement to provide SPDs in languages other than English in certain
situations, the SBC must be provided in Chinese, Navajo, Spanish and Tagalog if issued in
counties where more than 10 percent of the population is literate only in one of these languages.
The English version of the SBC distributed in those counties must disclose the availability of
language services on the page of the SBC that includes the “Your Rights to Continue Coverage”
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and “Your Grievance and Appeals Rights” sections. The Department of Labor has provided this
sample language:
SPANISH (Español): Para obtener asistencia en Español, llame al [insert telephone number]. TAGALOG (Tagalog): Kung kailangan ninyo ang tulong sa Tagalog tumawag sa [insert telephone number].
CHINESE (中文): 如果需要中文的帮助,请拨打这个号码 [insert telephone number].
NAVAJO (Dine): Dinek'ehgo shika at'ohwol ninisingo, kwiijigo holne' [insert telephone number].
Q46. Can I include the information about language assistance services even if the SBC is being
provided in a county that does not need to include this disclosure?
A46. Yes.
Q47. How can I determine if I have employees in a county that needs a translated version?
A47. The Department of Health and Human Services has posted a list of the counties that meet the 10%
threshold at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-
CLAS-County-Data_12-05-14_clean_508.pdf.
Q48. Are translated versions of the SBC and glossary available?
A48. Yes. You can access them at http://cciio.cms.gov/resources/other/index.html#sbcug.
Other Disclosure Requirement and Penalties
Q49. Does this replace my SPD, certificate or any summary I usually provide at open enrollment?
A49. No, the SBC does not replace your SPD or certificate. If you already provide a summary of benefits,
you can continue to provide it and also provide the SBC, but you cannot provide anything instead of
the SBC.
Q50. My state also has disclosure requirements. Must I follow them, too?
A50. If a state imposes additional requirements, those requirements also must be met (possibly in a
separate document due to the strict formatting rules that apply to SBCs).
Q51. What happens if I don’t provide an SBC?
A51. The penalties for willful (i.e., deliberate) failure to provide an SBC are up to $1,000 for each person
who should have received the SBC and did not. The penalty for negligent failure to provide is up to
$100 per day for each person who should have received the SBC and did not.
The regulatory agencies have said they will work with employers who have made good faith efforts
to comply but didn’t quite get it right.
This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.
6/152015 11 ©2015 United Benefit Advisors, LLC. All rights reserved.
U.S. Supreme Court Upholds ACA Subsidy Eligibility on Federal Exchanges
The Supreme Court issued its opinion in King v. Burwell, holding that the Internal Revenue Service (IRS)
may issue regulations to extend tax-credit subsidies to coverage purchased through Exchanges
established by the federal government under the Patient Protection and Affordable Care Act (ACA). The
six-to-three opinion was authored by Chief Justice John Roberts, who was joined by Justices Kennedy,
Ginsburg, Breyer, Sotomayor, and Kagan. Justice Scalia dissented, and was joined by Justices Thomas
and Alito.
Background
The case involved four Virginia plaintiffs who challenged the IRS ruling that individuals are eligible for the
premium subsidy regardless of whether their state has a state-run or federally-run Marketplace or
Exchange. The plaintiffs did not wish to purchase health insurance, and would have been required to with
the availability of premium tax credits. They contended that Section 36B, by its plain language, only
allowed premium subsidies for insurance purchased on Exchanges created by “states.” Since Virginia has
a federally-run Exchange, plaintiffs claimed that they were not eligible for premium subsidies, rendering
insurance unaffordable to them and exempting them from the ACA’s requirement to purchase coverage.
The Kaiser Family Foundation reports that currently there are 14 states with state-based Marketplaces,
three with federally supported Marketplaces, seven with state-partnership Marketplaces, and 27 with a
Federally Facilitated Marketplace (FFM).
Supreme Court Ruling
Chief Justice Roberts, writing for the majority, boiled the case down to the question of “whether the Act’s
tax credits are available in States that have a Federal Exchange.” The opinion begins by describing the
ACA’s (or “the Act” as it is referred to in the opinion) three key reforms: (1) guaranteed coverage and
community rating; (2) the individual mandate or the requirement for all Americans to maintain health
insurance; and (3) making insurance affordable by giving refundable tax credits to individuals with
household incomes between 100 percent and 400 percent of the federal poverty level (FPL). “These three
reforms are closely intertwined,” and Congress was clear that the first reform’s success (guaranteed
coverage and community rating) was upheld by the coverage requirement, which in turn would only be
successful with the tax credits. This is because without tax credits, the cost of buying insurance would
1 ©2015 United Benefit Advisors, LLC. All rights reserved.
exceed 8 percent of income for a large number of Americans, exempting them from the coverage
requirement. The Court ruled that the intertwined importance of the three was underscored by their
uniform effective date of January 1, 2014.
To reach its decision, the Court declined to follow the two-step framework of Chevron USA v. Natural
Resources Defense Council, that provides the Court a process to analyze an agency’s (in this case, the
IRS) interpretation of a statute. Noting that this case falls under the exception of “extraordinary cases” the
Court instead tasked itself with determining the correct interpretation of Section 36B. With that task in
mind, Chief Justice Roberts noted it was the Court’s duty to “construe statutes, not isolated provisions.”
With a thorough look at the language in Section 18041 of the ACA, definitions provided by the ACA, and
language in Section 18031 of the ACA, the Court could not conclude that the phrase “an Exchange
established by the State” is unambiguous. As a result, the Court was forced to turn to the broader section
of the ACA in order to determine the meaning of Section 36B. In its review of the language, Chief Justice
Roberts wrote that “The Affordable Care Act contains more than just a few examples of inartful drafting”
and provided the example that it contained three separate section 1563s. Chief Justice Roberts noted
that Congress wrote key parts of the Act behind closed doors, rather than through a more traditional
process, Congress used the reconciliation process to limit opportunities for debate and amendment, and
“as a result, the Act does not reflect the type of care and deliberation that one might expect of such
significant legislation.”
When turning to the broader structure of the Act, the Court held “the statutory scheme compels us to
reject petitioner’s interpretation because it would destabilize the individual insurance market in any State
with a Federal Exchange and likely create the very ‘death spirals’ that Congress designed the Act to
avoid.” To follow the petitioner’s (or plaintiff’s) interpretation would lead to the removal of tax credits,
which would then render the coverage requirement meaningless. With 87 percent of individuals
purchasing insurance on the Exchange with help from subsidies, the impact would not be small. Citing
Justice Scalia’s dissent in the cornerstone ACA case National Federation of Independent Business v.
Sebelius, the Court held it was implausible for Congress to operate the ACA in this manner, as “without
federal subsidies… the exchange would not operate as Congress intended and may not operate at all.”
The Court also considered, but rejected, the plaintiff’s argument that Congress was “not worried” about
the effects of withholding tax subsidies from states who chose not to operate an Exchange because
“Congress evidently believed it was offering the states a deal they would not refuse.” The Court
disagreed, holding that by setting up a federal fallback in case a state opted out of operating its own
Exchange, “it expressly addressed what would happen if a state did refuse the deal.”
Finally, the Court held that the structure of Section 36B suggests that tax credits are not limited to state
Exchanges due to its definition of “applicable taxpayer.” Relying on a previous holding that Congress
“does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions,” the
Court concluded that Congress “would not have used such a winding path of connect-the-dots provisions
about the amount of the credit.”
Affirming the 4th Circuit’s decision, the Court held that “Congress passed the Affordable Care Act to
improve health insurance markets, not destroy them. If at all possible, we must interpret the Act in a way
that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with
what we see as Congress’s plan, and that is the reading we adopt.”
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Dissent
Justice Scalia authored the dissenting opinion, leading with “The Court holds that when the Patient
Protection and Affordable Care Act says ‘Exchange established by the State’ it means “Exchange
established by the State or the Federal Government.’ That of course is quite absurd and the Court’s 21
pages of explanation make it no less so.”
Finding that “words no longer have meaning if an Exchange that is not established by the State is
‘established by the State’,” Justice Scalia went on to find that “the normal rules of interpretation seem
always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved.”
Holding that Congress knew how to equate two different types of Exchanges when it wanted to do so,
and accusing the majority of engaging in “interpretive jiggery-pokery” Justice Scalia writes that although it
might not make sense to only allow tax credits to those on state Exchanges, the result would be odd, not
ambiguous.
Recognizing that mismatches often occur when lawmakers draft a single provision to cover diverse or
different types of situations, Justice Scalia further disagreed that the structure of Section 36B provides
support for tax credits for those on the federal Exchange, noting that many individuals are eligible for
various tax credits at the outset only to later be provided a credit amount of zero due to income
thresholds. Justice Scalia cited the child tax credit, the earned-income tax credit, and the first-time
homebuyer tax credit as examples.
Justice Scalia argues that the Court is wrong in both its decision to consult statutory purpose and its
analysis of it. Finding that the ambiguous language at issue was used in other parts of the law, Justice
Scalia argues that this was not “a slip of the pen,” but purposeful by Congress. Justice Scalia argued that
if Congress valued the ACA’s applicability to all, it had the power to make tax credits available on all
Exchanges.
Again rejecting the Court’s reasoning in the earlier case (in which he dissented) National Federation of
Independent Business v Sebelius, Justice Scalia noted “we should start calling this law SCOTUScare,”
and in conclusion held that the majority opinion shows the “discouraging truth that the Supreme Court of
the United States favors some laws over others, and is prepared to do whatever it takes to uphold and
assist its favorites.”
6/25/2015
This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.
3 ©2015 United Benefit Advisors, LLC. All rights reserved.