Can ‘resign & rehire’ trick bypass open enrollment?

Q. An employee failed to participate in open enrollment, thereby losing her insurance coverage. Can she resign and be immediately rehired to enroll in our medical plan as a new hire? — Theresa, Virginia

A. No, not without putting the plan at risk for failing to comply with Section 125 of the IRS regulations covering cafeteria plans (assuming your health plan is set up as a Section 125 plan and permits employees to pay for their insurance using pretax dollars).

Regulations define when employees may or may not enroll in terms of a “qualifying event.” Generally, there is an open enrollment period each year and employees may enroll following a qualifying event, such as being hired, getting married, the birth of a child, change in spouse’s eligibility for employer-offered health insurance, etc. Employees typically can’t just enroll whenever they choose because of the concern that many will sign up for insurance only when a health problem arises.

Although no specific regulation addressing your question exists, the regulations suggest that an employee who resigns and is rehired within 30 days has not experienced a “qualifying event” and will retain her same status with respect to the health plan.  

Even if you conclude the employee can’t manufacture a change in status by resigning and being rehired, the employee still has options. Post-tax health insurance plans (perhaps including a supplemental insurance plan offered by your employer) can be purchased at any time of year. And, of course, if the employee has a qualifying change of status (birth of a child, for example), she can elect to enroll herself and family at that time, too.

Finally, consult with your benefits counsel regarding your options with respect to the person.