In Notice 2014-55, the Internal Revenue Service (IRS) announced two new situations in which employees may change their health plan elections midyear under their employer’s cafeteria plan.  In the first, an employee’s hours are reduced below 30 per week (without a corresponding loss of eligibility for the employer’s group health plan).  In the second, an employee decides to enroll in coverage through a Marketplace Exchange (Exchange).  Both of these are optional changes in status; neither is mandatory.

Reduction in Hours

If an employee who was expected to work on average at least 30 hours per week is then expected midyear to work on average less than 30 hours per week, the employee may drop his or her employer-provided group health plan coverage, even if the reduction in hours does not result in the employee’s loss of eligibility under the group health plan.  The change in election must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in other minimum essential coverage (group health plan or Exchange).  The new coverage must be effective no later than the first day of the second month following the month in which the employer-sponsored coverage is dropped.  The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.

Exchange Coverage

An employee who is eligible to enroll in Exchange coverage (during an Exchange open enrollment or special enrollment period) may drop employer-provided group health plan coverage midyear.  The change must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in Exchange coverage that is effective no later than the day after the last day of the employer-sponsored coverage.  The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.

Plan Amendment

If an employer chooses to adopt one or more of these midyear election changes for its cafeteria plan, a plan amendment is necessary.  The amendment generally must be adopted on or before the last day of the plan year in which the additional changes are allowed and can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the guidance, including notification to participants of the amendment.

Special Rule for the 2014 Plan Year

Under a special rule, an employer that adopts these new midyear election changes for its 2014 cafeteria plan year has until the last day of the 2015 plan year to adopt the amendment.  Although plan amendments may be adopted retroactively, election changes to revoke coverage retroactively are not permitted.