Change of Status question for flex-spending

Paige

We currently have an employee whose husband and daughter both work for us as well. The wife has both the husband and daughter on her insurance and has deductions coming out pre-tax. The daughter has left and will be working for another employer from whom she will begin receiving health insurance benefits. The wife now wants to change insurance status, taking hers from family coverage to single coverage and having the husband pick up single coverage because it is cheaper this way.

Does this qualify as a change in status for flex plans?

Down_the_Middle

People are avoiding your question like the plague, so I'll take a shot. I'll happily defer this to the COBRA/FSA experts out there, but in the absence of their involvement.............. Seems to me that since the situation you describe is dependent upon the employment status of the dependent (to obtain family health coverage)and there is a change is that person's status (termination), I think that CHANGE constitutes a change in employment and thus, a qualifying event. I'd be inclined to allow the parent' to revise their health coverage to single or employee/spouse (if you have such an option). I'll not be offended if someone proves me wrong, but I think this makes sense.

Herman

I'm not an expert, but based on my experience: premium is premium, I would just make the change.

CuriousG

I am no legal expert either, but I do Administer a Section 125 POP plan and have had to address this type of question. I have seen plans that go either way on the issue, but the IRS guidelines do seem to cover the situation.

There are two questions here actually:

1. Does the daughter's change in employment consitute a change in family status? The answer is a definte yes.

2. Does the daughter's change in employment allow the parents who remain with your company to change their coverage?

This is where it get's gray. Some plans are liberal in their administration philosophy and say a change in family status allows the employee to make any change they want to their coverage. I have always taken a conservative approach as I was taught the IRS regulations only allow a change to the coverage of the person affected by the status change. In your case, the daughter.

Under the conservative approach you would allow the employee to drop the daughter from coverage, and if this allowed a change in coverage level you could allow that change, so long as it did not drop the husband's coverage as a dependent. As I said, this is a conservative approach, however, it is the one the Tax Attorney I work with has urged us to adopt with our Section 125 Plan administration.

Scott Ruth

Interesting set of facts, and while it is tempting to say it is all just premiums under one plan, it is important to remember that the premium amount is the election being made under the cafeteria plan, not the coverage level (that is the corresponding election under the health plan). So, this change is subject to the "consistency rules" outlined in the new cafeteria plan regulations just as if the husband were not eligible to elect his own single coverage under the same plan.

The relevant part of the 2001 rule states: "if . . . a dependent gains eligibility for coverage under a family member plan [in this case her new employer's plan] as a result of . . . a change in employment status . . ., an employee's election under the cafeteria plan to cease or decrease coverage for that individual under the cafeteria plan corresponds with that change in status only if coverage for that individual becomes applicable or is increased under the family member plan."

This rule contemplates only a change for the individual who has the employment status change, the daughter in this case. Because the husband had no employment status change affecting his eligibility for coverage under the plan, the wife is not entitled to change her election with respect to him.