April Handlir (3)

By April Handlir, Compliance Manager

The “how” of processing a new employee, a qualifying life event (QLE), termination, or open enrollment may leave you scratching your head in confusion. The caveats that are created under the different legislations are difficult to understand. The Affordable Care Act (ACA), HIPAA (Health Insurance Portability Accountability Act) Special Enrollment, and Section 125 (POP or Cafeteria Plan) all have conflicting rules.

Waiting Periods and Effective Dates:
  • The ACA says your waiting period can be no longer than 90 days and the coverage must begin no later than the 91st day.
  • HIPAA does not address this requirement.
  • Section 125 mandates the employee election MUST be made prior to the effective date of the coverage for the employee to pay with pre-tax dollars. The only exception is a group health plan (GHP).
Retroactive Coverage:
  • The ACA allows for eligibility corrections.
  • HIPAA allows for special enrollment circumstances such as birth, loss of coverage and marriage.
  • Section 125 only allows newborns or adoptions and immediate day waiting periods (WP) when the election is made within the 30-day administrative period beginning with the employee’s date of hire (DOH). All retroactive changes should be processed with post-tax premiums.
Special Enrollment events:
  • The ACA requires enrollment for a loss of coverage, marriage, birth, etc.
  • HIPAA requires enrollment for a loss of coverage, marriage, birth, etc.
  • Section 125 permits enrollment only if indicated in the plan document and the event must be consistent with the status change.
Termination of coverage:
  • The ACA allows retroactivity for ineligible dependents.
  • HIPAA allows retroactivity for loss of eligibility.
  • Section 125 only allows employee contributions to end prospectively unless it is a newborn or adoption. All retroactive terminations should be processed with post-tax premiums.
Open Enrollment (OE):
  • The ACA mandates the opportunity to change coverage every 12 months.
  • HIPAA does not address this requirement.
  • Section 125 allows the change if they are made prior to the renewal date. If OE ends and prior to the effective date of the plan the employee wishes to make a change, this is allowed, or you can disallow if your plan documents indicate the process. You cannot make any changes after the renewal date for open enrollment unless there is a QLE.
How to distinguish which legislation governs:
  • HIPAA and the ACA determine when and who receive the coverage. Offerings are not optional.
  • Section 125 determines how and when pre-tax premiums can be deducted. If following a HIPAA and ACA coverage guideline the employee contributions need to be processed as post-tax through the election date. Offerings are optional.
Apply the pre-tax premium with the coverage rules:
  • Under section 125, if the election is made after the effective date of the coverage, allow the coverage to be effective based on eligibility but take the premium post-tax through the election date. Meaning the employee deductions should be post-tax from the effective date through the election date of the coverage.
How to remain compliant:
  • The GHP compliance documents, the SPD (summary plan description) and the Cafeteria Plan documents should specify:
    • election deadlines for new hires, open enrollment, and QLE’s
    • retroactive coverage
    • tax treatment of the employee contributions
    • optional section 125 categories
  • Have a strict 30-day administration window for processing all enrollments.
  • Do not process any changes outside of the rules via exception.
  • If enrollments are processed per ACA or HIPAA guidelines, apply the employee contribution post-tax for any retroactive activity.
  • Educate staff and employees on the rules and regulations. Make it clear exceptions will not be made.
  • Complete nondiscrimination testing annually.
  • Do not allow ineligible enrollment such as contractors, partners, or seasonal employees.
  • Unless you are fully insured, you must get approval from the stop-loss carrier before proceeding, even if the carrier allows the request.
What events are optional for employers offering section 125:
  • Change in employment status
  • Change in residence (If the plan is an HMO tied to providers in the service area)
  • Significant cost or coverage changes (employer changes cost)
  • Court orders
  • Medicare/Medicaid entitlement
  • FMLA leave
  • Exchange enrollment (not termination)
  • Reduction in hours without loss of eligibility
What options are mandatory for HIPAA Special Enrollment and Section 125?
  • Birth
  • Adoption
  • Marriage
  • Loss of eligibility for other group coverage
  • Loss of Medicaid or CHIP
  • Gain of eligibility for Medicaid/CHIP premium assistance
The risks of not following rules:
  • If your plan is self-funded or level funded the claims could be denied for eligibility purposes leaving the GHP at risk for paying the claims outside of the GHP or trust.
  • The entire plan under section 125 could be deemed ineligible by losing the tax-advantage status. This means all pre-tax employee contributions become taxable income. In addition, the employees will pay FICA on the amounts. The employer may owe payroll taxes on the amount.
  • Employers can face an IRS audit, penalties, and interest.
  • Health FSA (flexible spending account) and dependent FSA can be disqualified.
  • Plan amendments and employee communications.

Qualifying Life Events That Make You Go “Hmm…”

Scenarios – How to proceed:

  1. The employee has a status change from full-time (FT) to part-time (PT), but we offer coverage to our PT employees, can the employee still make coverage changes including: disenroll coverage, disenroll dependents, or elect another plan? YES
  2. The employee has elected coverage on the Marketplace, can they drop their GHP? YES
  3. The employee has lost their Marketplace coverage, is this a QLE? NO
  4. The employee has been enrolled in Medicaid or CHIP or lost these coverages. Are these QLE’s (60-day election)? YES
  5. The employee neglected to inform the employer they were divorced, can the termination of the spouse be retroactive to the date of divorce? How are the pre-tax reimbursements processed? YES/post-tax
  6. The employee turned in the OE enrollment form a week after OE ended. It is within 30 days, so the employee is eligible for coverage. There is not a 30-day window after OE closes, this is for new hires and QLEs only? NO
  7. The employee is having financial hardships and requested to drop the GHP, can this be allowed? The cost of coverage is specific to the employer making a mid-year cost change to the GHP. NO
  8. We do not offer a cafeteria plan can employees drop and enroll in coverage whenever they want? ACA and HIPAA still apply but section 125 does not. YES
  9. The employee had a voluntary loss of coverage through the spouses OE; this does not trigger enrollment under HIPAA Special Enrollment. It is permissible under Section 125 even if the OE period is different if the plan documents allow. Does the plan have to allow this? NO
  10. The employee had a QLE, can they make plan changes? YES
  11. The employee got married, can the spouse drop coverage and enroll in the employee’s coverage outside of OE even if they are not currently enrolled on his/her plan? Enrollment change must be consistent – tag-along rule. YES
  12. Does dropping coverage during a spouse’s OE allow for the employee to enroll in the group health plan outside of OE? YES
  13. The employee moved out of the area, is this a QLE? Only if the GHP is an HMO. NO
  14. What if the employee cost of coverage is $0 for the tier enrolled, can they drop coverage or elect whenever? ACA and HIPAA still apply. YES