Cafeteria Plan

Johana 1

Our Medical Insurance is under a Cafeteria Plan. Which means no changes until open enrollment or a qualified event.Our rates went up 27% for the new open enrollment ( November 2002). We have asked the insurance company for a 4 month extension. Changing our open enrollment to April 2003. Our rates are going up 17% effective Dec 1 2002 and the other 10% April 1 2003. We are going to distribute the cost in 16 months to make it fair to all parties. Not a problem there. Here is my question. Can employees drop/change the coverage once we hit them with the rate change ( it's about $4.05 per week single/ $20 week for family)? Legally want are the rules here? Do they have to keep the insurance until the new open enrollment in April? or Can they cancel now because the change in rates?

awilliams

This is a good question, so good in fact, that the DOL recently implemented regulations to speak to the question of cafeteria plan rates changes mid-plan. The new rules are effective for plan years beginning on or after January 1, 2002. Here is a brief summary:

 Participant may drop coverage if the cost of coverage significantly increases and there is no similar alternative coverage available.
 If there is a significant decrease in the cost of coverage, eligible employees (including participants in similar benefit options and employees who are not enrolled in the plan) may elect the affected benefit.
 If a new benefit option is added or a benefit option is significantly improved, eligible employees (including participants in similar benefit options and employees who are not enrolled in the cafeteria plan) may elect the new or significantly improved benefit.
 If there is a significant coverage curtailment resulting in a loss of coverage and no similar alternative is available, participants may drop coverage.
 Participants may make a change that corresponds with changes made under the cafeteria plan of the dependent's or spouse's employer or changes made under any other employer plan (e.g., the plan of the domestic partner's employer or the employee’s employer).
 Participants may change coverage to add self or dependent who lost coverage under a group health plan maintained by a governmental or educational institution.
 Election changes to life, disability, and dismemberment (including accidental death and dismemberment) coverage are permissible for any Change in Status even though eligibility is not affected by the Change in Status event.

I hope that this is helpful.

FYI, this is an excerpt from the upcoming December issue of Benefits and Compensation Law Alert, a sister publication of your Employment Law Letter.

Anne Williams
Attorney Editor
M. Lee Smith Publishers, LLC

Lori B

Thanks for the good info Anne. One question we wrestle with: we have ees who want to bring their families onto our plan now b/c their employers with calendar year plans are hitting them with such high increases. (Our plan year is fiscal.) Does an ee's spouse who voluntarily drops coverage with his own employer, qualify as a change in status to enable us to bring that spouse into our plan now? Or do we say, sorry, wait for our own open enrollment window to bring in your spouses? Just curious.

slm

Mid-year changes can be allowed when the EE's open enrollment date differs from their spouse's open enrollment date (FSA's are excluded)

- Sharon