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IRS lets employees drop cafeteria coverage, choose ACA plans

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in Compensation and Benefits,Human Resources

Cafeteria plans may, but aren’t required to, allow employees who experience a change in status (such as a change in marital status) to change or revoke their elections.

Now the IRS has expanded the conditions under which cafeteria plans may allow employees to revoke their participation in group health plans to account for individual coverage that’s available on the Affordable Care Act’s health insurance exchanges. That could save them money.

The new rules became effective Sept. 18. (Notice 2014-55, IRB 2014-41)

Reduction in hours: This applies to full-time employees who become part-timers due to a reduction in hours to fewer than 30 a week. Under the new rules, cafeteria plans may allow these employees to opt out of a group plan.

Employees who opt out must arrange their coverage so it begins by the first day of the second month following their revocation of group coverage.

Special election periods: Employees who participate in cafeteria plans operating on a noncalendar-year basis, and who qualify for a special enrollment period to enroll in individual coverage through the exchange, could run two big risks: Either having to pay simultaneous premiums on two policies or experiencing a gap until the new coverage kicks in.

The new rules allow those employees to withdraw from the group plan, provided their individual policies become effective the next day.

Note: In both instances, you may take employees’ word for it. Their reasonable representations that they have enrolled or intend to enroll in individual coverage through a health insurance exchange are sufficient.

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