Cafeteria Plans: Change in Status and Changing Employee...

Cafeteria Plans:

Change in Status and Changing

Employee Elections

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for

expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable

benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance.

Employees are given the opportunity to select the benefits they want, just like an individual standing in the

cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan: (1) coverage under an accident or health

plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-

insured medical reimbursement plans, dental, vision, and more); (2) dependent care assistance benefits

or DCAPs; (3) group term life insurance; (4) paid time off, which allows employees the opportunity to buy

or sell paid time off days; (5) 401(k) contributions; (6) adoption assistance benefits; and (7) health savings

accounts or HSAs under IRS Code Section 223.

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that

you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-

employees, transportation and other fringe benefits, long-term care, and health reimbursement

arrangements (unless very specific rules are met by providing one in conjunction with a high deductible

health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or

components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also

affected aspects of cafeteria plan administration.

Making Election Changes

Employees are allowed to choose the benefits they want by making elections. Only the employee can

make elections, but they can make choices that cover other individuals such as spouses or dependents.

Employees must be considered eligible by the plan to make elections. Elections, with an exception for

new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be

changed during the plan year, unless a permitted change in status occurs. There is an exception for

mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

Change in marital status

Change in the number of dependents

Change in employment status

A dependent satisfying or ceasing to satisfy dependent eligibility requirements

Change in residence

Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a

change in status but nonetheless can trigger an election change:

Significant cost changes

Significant curtailment (or reduction) of coverage

Addition or improvement of benefit package option

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Change in coverage of spouse or dependent under another employer plan

Loss of certain other health coverage (such as government provided coverage, such as Medicaid)

Changes in 401(k) contributions

HIPAA special enrollment rights (contains requirements for HIPAA subject plans)

COBRA qualifying event

Judgment, decrees, or orders

Entitlement to Medicare or Medicaid

Family Medical Leave Act (FMLA) leave

Pre-tax health savings account (HSA) contributions

Reduction of hours (new under the ACA)

Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election

change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a

network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a

legal separation, commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election

change, such as a mistake by the employer or employee, or needing to change elections in order to pass

nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing

evidence that the mistake has been made. For instance, an individual might accidentally sign up for family

coverage when they are single with no children, or an employer might withhold $100 dollars per pay

period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts

in the middle of the plan year, so long as automatic election language is in the plan documents. An

“insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests,

and the time limit to impose on employees who wish to make an election.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow

changes must follow IRS requirements. These requirements include consistency, plan document

allowance, documentation, and timing of the election change.

Consistency. In order to make the change an employee must have experienced the specified change or

event, and the requested change must be consistent with the change or event.

Example: Susan is a full-time benefits eligible employee of The Oyster House. Susan becomes

Medicare eligible and wishes to make changes to her cafeteria plan elections. If the plan allows, she

would be permitted to make changes to any benefit that provides accident or health coverage,

including a health FSA. She would not be permitted to make changes to other elections such as

dependent care, paid time off, or group life insurance. There is no consistency between Medicare

eligibility and paid time off needs.


The consistency rules require that an election change is due to and corresponds with the change in status

that effects eligibility for coverage under the plan. There are relaxed consistency rules for group term life

insurance, dismemberment and disability coverage. There are also special consistency rules for election

changes when DCAP or adoption assistance plan expenses are affected, a limitation on changes due to

divorce, death of a spouse or dependent, or a dependent’s loss of eligibility, and a limitation on election

changes decreasing or ending coverage because a new family member has become eligible.

DCAP elections cannot be changed because an unemployed individual enrolls in educational courses. If

a medical plan automatically terminates dependents when they reach age 26, there would be no

qualifying event because no changes would need to be made by the employee.

Overview of Consistent Changes

Type of Event Permitted Change

Change in status event (marital status, number of

dependents, employment status, dependent

eligibility change, change in residence,

commencement or termination of adoption

proceedings)

May make election changes for all qualified

benefits

Significant cost change May make changes to all qualified benefits other

than health FSAs

Significant coverage curtailment or reduction May make changes to all qualified benefits other

than health FSAs

Addition or significant improvement of benefit May make changes to all qualified benefits other

than health FSAs

Change in coverage under another employer plan May make changes to all qualified benefits other

than health FSAs

Involuntary loss of health coverage (such as

coverage sponsored by the government or

educational institution)

May make election changes for any group health

plans

HIPAA special enrollment Must allow employee to make changes for any

group health plans that are not an excepted

benefit under HIPAA

COBRA qualifying event May make election changes for any group health

plans subject to COBRA (this includes FSAs)

Judgments, decrees, or orders May make election changes for accident or health

coverage (this includes FSAs)

Medicare/Medicaid entitlement May make election changes for any accident or

health coverage

FMLA leave of absence May make election changes to accident or health

plan coverage, including health FSAs.



Reduction of hours May make changes for group health plans (not

FSAs) that provide minimum essential coverage

under the ACA

Exchange enrollment May make changes for group health plans (not


under the ACA (other rules apply)

Plan Documents. If an individual has a permitted election change event and the desired change is

consistent with the event, then it must be determined if the cafeteria plan document recognizes the

permitted election change event. If it does not (or the plan does not allow individuals not already on the

plan to elect benefits mid-year), the election change is not allowed. If the plan recognizes the change

event, not only does the cafeteria plan document have to allow the change, but the plan documents of the

component benefit must allow it as well (such as the underlying plan documents for the group health

plan).

Documentation and Timing. If the individual has a permitted election change event, the desired change

is consistent with the event, and the plan documents allow the change, documentation that all of those

requirements have been met should be made. A signed certification by the employee is sufficient. Under

ERISA, these records should be kept for at least eight years. Employees are permitted to make changes

electronically by self-certifying. The employer should keep electronic records of this change.

Plan administrators should administer election changes involving same-sex spouses in the same manner

that they handle election change requests for individuals with opposite-sex spouses.

Change in Status Events

As mentioned above, plans may allow participants to change elections based on an IRS-specified list of

change in status events.

Change in Marital Status

Both same-sex and opposite-sex marital status changes are qualifying events. Legal separations and the

commencement and termination of a domestic partnership are not. There is a narrow exception if a

domestic partnership changes an individual’s tax status. If a domestic partner qualified as a tax

dependent for health coverage purposes, this could trigger a qualifying event.

Change in the Number of Dependents

The change in a number of dependents can trigger a qualifying change in status event. Birth, adoption, or

placement for adoption will likely trigger a HIPAA special enrollment right, which creates a responsibility

for plans subject to HIPAA (discussed later). “Dependent” refers to tax dependent under IRS Code

Section 152, with an exception for accident and health coverage, under which a child to whom IRS Code

section 152(e) applies is treated as a dependent of both parents. IRS Code Section 152(e) involves rules

for divorced parents.


Change in Employment Status

A change in employment status that affects an individual’s eligibility for a benefit is a permissible change

in status event. The following events are a change in status of an employee (or their spouse, or

dependent):

Termination or beginning of employment

Strike or lockout

Return from or beginning of an unpaid leave of absence

Change in worksite

If benefits eligibility is dependent upon employment status, and that status changes (such as a move from

full time to part-time), this can be a qualifying event. However, unless a plan-allowed “reduction in hours

or cost change event” (discussed below) occurs when an individual becomes part-time but is still benefits

eligible, it is not a qualifying event.

A Dependent Satisfying or Ceasing to Satisfy Dependent Eligibility Requirements

If a tax dependent satisfies or ceases to satisfy the requirement for coverage due to aging out, changing

student status, marriage, etc., this is a qualifying event. Practically speaking, due to the ACA’s

requirement to provide health coverage to children under the age of 26, marriage and student status

changes are unlikely to trigger a qualifying event for health coverage. This might not be the case for other

benefits such as vision or dental coverage.

Change in Residence

A change in residence that affects eligibility for coverage would be a qualifying event. The move must result

in a loss of eligibility for coverage. FSAs cannot be changed due to a residence change. If, for example, an

individual was covered by an HMO and moved out of the network of providers, the employee could be

permitted to drop coverage (if no other coverage was offered by the employer) or elect different coverage.

Keep in mind that a carrier’s network may have providers at the employee’s residence or work location.

Commencement or Termination of Adoption Proceedings

For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination

of an adoption proceeding is a qualifying event.

Other Events that Allow a Change in Elections

Outside of the change in status events, the IRS recognizes other events that would allow a plan to permit

an individual to make an election change.

Significant Cost Changes

A plan may permit individuals to make election changes due to significant cost changes. For this rule to

apply the following must be met:

A benefit plan must be an eligible qualified benefit other than a health FSA.

The cafeteria plan document must include language regarding significant cost changes.

The cost-change being passed on in the form of changed participant contributions must be

significant.

A determination must be made whether any alternative coverage is similar.


Employees would only be permitted to revoke or drop coverage due to a cost change if no similar

coverage option is available, which is defined as “coverage of the same category of benefits for the same

individuals.” If an employer offers two medical plans, one that is expensive and one that is inexpensive,

regardless of the cost change, an employee would only be permitted to switch to the other plan, not

revoke coverage entirely. This rule would apply even if the two medical plans were very different, such as

an HMO versus a high deductible health plan (HDHP). There is no definition of what constitutes a

“significant” cost change, but the change can be employer or employee initiated.

Significant Coverage Curtailment or Reduction

Plans may allow employees to make mid-year election changes due to a significant coverage curtailment,

with or without a loss of coverage. The definition of coverage curtailment is not entirely clear, and the

regulations state that there is a significant curtailment of coverage “only if there is an overall reduction in

coverage provided under the plan so as to constitute reduced coverage generally.”

In the event of coverage curtailment without a loss of coverage, a participant is only permitted to revoke

his or her election and elect similar coverage. If there is a loss of coverage, participants may only revoke

elections if “no similar benefits package” is available. Again, if an employer offered two medical plans, the

employee would only be permitted to elect the second plan.

Addition or Significant Improvement of Benefit Package Option

In the event an employer adds a new benefit package option or other coverage option, or if an existing

option is significantly improved, eligible employees (including those who had not previously made an

election) may revoke their election and make new elections on a prospective basis for coverage under the

new plan or option. The term “significant improvement of coverage” is not defined but generally an

increase in medical providers available in network is an improvement. If only one component of the

cafeteria plan has an addition, changes can only be made to the election of that component.

Change in Coverage under Another Employer Plan

A cafeteria plan my permit a participant to make election changes due to a change in coverage under

another employer plan. This would be triggered by one of two situations:

The other employer plan allows a permissible election change.

The other employer plan has a different period of coverage.

Example: Susan and John each have medical coverage from their individual employers. Susan’s

employer has a fiscal year plan; John’s employer has a calendar year plan. Susan and John are

married and make no changes to their elections at that time. Six months after getting married they

determine that they would like to be on the same plan. Shortly thereafter, Susan’s plan has open

enrollment. She drops her employer coverage during open enrollment, thus triggering a permissible

change that would allow John to enroll her in his employer’s plan.

Loss of Group Health Coverage

A plan may allow participants to make changes due to the loss of coverage under other group health

coverage, such as a state children’s health insurance program (CHIP), a medical program of an Indian

Tribal government, a state health benefits risk pool, or a foreign government group health plan. This

change applies only to the loss of coverage, not to a gain. Loss of coverage from an educational

institution would also qualify.


HIPAA Special Enrollment Rights

Group health plans subject to HIPAA must provide special enrollment for certain individuals. Plans are not

required to allow pre-tax election changes for HIPAA special enrollment events; however the

administrative overhead of handling these changes on an after-tax basis is often unduly burdensome.

HIPAA special enrollment rights overlap with other change in status events. The other events are

permissive, but HIPAA enrollment events require the ability to make health coverage changes. HIPAA

special enrollment rights also allow a limited ability to elect retroactive coverage on a pre-tax basis.

HIPAA special enrollment events also obligate the employer to offer a special enrollment period of a

minimum specific duration, typically 30 or 60 days depending on the event.

HIPAA special enrollment events include the loss of health coverage, acquisition of a new dependent (by

marriage, birth, adoption, or placement for adoption) and loss of Medicaid or CHIP coverage.

Enrollment due to loss of coverage under a group health plan means loss of eligibility for non-COBRA

coverage, termination of employer contributions toward non-COBRA coverage, or exhaustion of COBRA

coverage. It could also apply to the loss of student or private insurance. HIPAA special enrollment events

permit employees to add coverage for other dependents at the same time.

Although retroactive elections are typically prohibited, under HIPAA if a newborn or child who is adopted

or placed for adoption is enrolled during the special enrollment period, the child can have retroactive

coverage to the date of birth, adoption, or placement for adoption.

COBRA Qualifying Events

A plan may permit an individual to make changes due to COBRA qualifying events. This would allow an

individual who went part-time, lost benefit eligibility and thus elected COBRA, to increase his or her salary

reductions to pay the increased COBRA cost. This would only be permissible if the individual lost health

plan eligibility but not cafeteria plan eligibility. An individual whose child elected COBRA after reaching

age 26 could also make a mid-year election change to increase pre-tax deductions to pay for the

coverage for the rest of the taxable year.

Judgments, Decrees, and Orders

A plan may allow election changes due to a judgment, decree, or court order, including qualified medical

child support orders (QMCSOs). Plan sponsors are not required to allow this change, but not doing so

would create a legal conflict if the plan documents and court order are at odds. This exception allows

employees to enroll a child in coverage or drop a child from coverage, as ordered by the court. This

exception does not include voluntary changes in health coverage between a child’s parents.

Medicare or Medicaid Entitlement

A plan may allow employees to drop or reduce coverage for themselves, their spouse, or dependents,

when any of those covered individuals gain Medicare or Medicaid entitlement. If an employee drops

coverage under the cafeteria plan for himself or herself, he or she should consider the impact on their

covered spouse’s or dependents’ eligibility under their group plan.

FMLA Leave of Absence

A plan may allow election changes due to leaves of absence under FMLA. FMLA requires covered

employers to permit eligible employees to take a certain amount of unpaid job-protected leave. An

employer must maintain coverage under any group plan during FMLA leave at the level and under the


conditions that would have been met if the individual had not gone on leave. However, a plan may allow

an employee to revoke or continue coverage, or discontinue employee contributions. Upon return from

leave, the employee has the right to have coverage reinstated if their coverage was terminated during the

leave (for example, for failure to pay premiums). To pay for the continued coverage the employee may

prepay, make ongoing payments, or make catch-up contributions.

Pre-Tax HSA Contributions

Employees may make changes to HSA contributions through pre-tax salary reductions at any time during

the year, as long as the change is effective before the salary to which the change applies becomes

available to the employee.

Reduction of Hours

One of the newest allowed events (beginning September 18, 2014), a plan may allow a participant whose

hours are reduced below 30 hours a week as a result of a change in employment status to drop his or her

employer-sponsored health coverage mid-year, regardless of whether the hour reduction caused a

change in the employee’s eligibility status. The IRS gave two conditions that must be met:

1. The employee has been in an employment status under which the employee was reasonably

expected to average at least 30 hours of service per week and there is a change in that

employee's status so that the employee will reasonably be expected to average less than 30

hours of service per week after the change, even if that reduction does not result in the employee

ceasing to be eligible under the group health plan; and

2. The revocation of the election of coverage under the group health plan corresponds to the

intended enrollment of the employee, and any related individuals who cease coverage due to the

revocation, in another plan that provides minimum essential coverage with the new coverage

effective no later than the first day of the second month following the month that includes the date

the original coverage is revoked.

This would allow an employee, otherwise locked into coverage due to his or her employer’s use of the

ACA’s measurement and stability period, to drop coverage during a stability period. Because this is a new

optional event, employers that wish to provide the opportunity to employees should amend their plans.

Exchange or Marketplace Enrollment

Another change under the ACA, the Exchange/Marketplace enrollment event permits plans to allow

participants who are eligible to enroll in Exchange/Marketplace coverage during a special enrollment

period to drop employer-sponsored health coverage mid-year, so long as the employee intends to enroll

in Exchange/Marketplace coverage. The employer only has to obtain a reasonable representation from

the employee that he or she intended to enroll on the Exchange. The following conditions must be met for

this change:

1. The employee is eligible for a special enrollment period to enroll in a qualified health plan through

an Exchange/Marketplace pursuant to guidance issued by the Department of Health and Human

Services and any other applicable guidance, or the employee seeks to enroll in a qualified health

plan through an Exchange/Marketplace during the Marketplace's annual open enrollment period;

and



intended enrollment of the employee and any related individuals who cease coverage due to the

revocation in a qualified health plan through an Exchange/Marketplace for new coverage that is

effective beginning no later than the day immediately following the last day of the original

coverage that is revoked.

Because this is a new optional event, employers that wish to provide the opportunity to employees should

amend their plans.

6/29/2015

This information is general and is provided for educational purposes only. It is not intended to provide legal advice.

You should not act on this information without consulting legal counsel or other knowledgeable advisors.


Cafeteria Plans:

Change in Status and Changing

Employee Elections

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for

expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable

benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance.

Employees are given the opportunity to select the benefits they want, just like an individual standing in the

cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan: (1) coverage under an accident or health

plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-

insured medical reimbursement plans, dental, vision, and more); (2) dependent care assistance benefits

or DCAPs; (3) group term life insurance; (4) paid time off, which allows employees the opportunity to buy

or sell paid time off days; (5) 401(k) contributions; (6) adoption assistance benefits; and (7) health savings

accounts or HSAs under IRS Code Section 223.

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that

you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-

employees, transportation and other fringe benefits, long-term care, and health reimbursement

arrangements (unless very specific rules are met by providing one in conjunction with a high deductible

health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or

components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also

affected aspects of cafeteria plan administration.

Making Election Changes

Employees are allowed to choose the benefits they want by making elections. Only the employee can

make elections, but they can make choices that cover other individuals such as spouses or dependents.

Employees must be considered eligible by the plan to make elections. Elections, with an exception for

new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be

changed during the plan year, unless a permitted change in status occurs. There is an exception for

mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

Change in marital status

Change in the number of dependents

Change in employment status

A dependent satisfying or ceasing to satisfy dependent eligibility requirements

Change in residence

Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a

change in status but nonetheless can trigger an election change:

Significant cost changes

Significant curtailment (or reduction) of coverage

Addition or improvement of benefit package option


Change in coverage of spouse or dependent under another employer plan

Loss of certain other health coverage (such as government provided coverage, such as Medicaid)

Changes in 401(k) contributions

HIPAA special enrollment rights (contains requirements for HIPAA subject plans)

COBRA qualifying event

Judgment, decrees, or orders

Entitlement to Medicare or Medicaid

Family Medical Leave Act (FMLA) leave

Pre-tax health savings account (HSA) contributions

Reduction of hours (new under the ACA)

Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election

change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a

network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a

legal separation, commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election

change, such as a mistake by the employer or employee, or needing to change elections in order to pass

nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing

evidence that the mistake has been made. For instance, an individual might accidentally sign up for family

coverage when they are single with no children, or an employer might withhold $100 dollars per pay

period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts

in the middle of the plan year, so long as automatic election language is in the plan documents. An

“insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests,

and the time limit to impose on employees who wish to make an election.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow

changes must follow IRS requirements. These requirements include consistency, plan document

allowance, documentation, and timing of the election change.

Consistency. In order to make the change an employee must have experienced the specified change or

event, and the requested change must be consistent with the change or event.

Example: Susan is a full-time benefits eligible employee of The Oyster House. Susan becomes

Medicare eligible and wishes to make changes to her cafeteria plan elections. If the plan allows, she

would be permitted to make changes to any benefit that provides accident or health coverage,

including a health FSA. She would not be permitted to make changes to other elections such as

dependent care, paid time off, or group life insurance. There is no consistency between Medicare

eligibility and paid time off needs.


The consistency rules require that an election change is due to and corresponds with the change in status

that effects eligibility for coverage under the plan. There are relaxed consistency rules for group term life

insurance, dismemberment and disability coverage. There are also special consistency rules for election

changes when DCAP or adoption assistance plan expenses are affected, a limitation on changes due to

divorce, death of a spouse or dependent, or a dependent’s loss of eligibility, and a limitation on election

changes decreasing or ending coverage because a new family member has become eligible.

DCAP elections cannot be changed because an unemployed individual enrolls in educational courses. If

a medical plan automatically terminates dependents when they reach age 26, there would be no

qualifying event because no changes would need to be made by the employee.

Overview of Consistent Changes


Change in status event (marital status, number of

dependents, employment status, dependent

eligibility change, change in residence,

commencement or termination of adoption

proceedings)

May make election changes for all qualified

benefits

Significant cost change May make changes to all qualified benefits other

than health FSAs

Significant coverage curtailment or reduction May make changes to all qualified benefits other

than health FSAs

Addition or significant improvement of benefit May make changes to all qualified benefits other

than health FSAs

Change in coverage under another employer plan May make changes to all qualified benefits other

than health FSAs

Involuntary loss of health coverage (such as

coverage sponsored by the government or

educational institution)

May make election changes for any group health

plans

HIPAA special enrollment Must allow employee to make changes for any

group health plans that are not an excepted

benefit under HIPAA

COBRA qualifying event May make election changes for any group health

plans subject to COBRA (this includes FSAs)

Judgments, decrees, or orders May make election changes for accident or health

coverage (this includes FSAs)

Medicare/Medicaid entitlement May make election changes for any accident or

health coverage

FMLA leave of absence May make election changes to accident or health

plan coverage, including health FSAs.



Reduction of hours May make changes for group health plans (not


under the ACA

Exchange enrollment May make changes for group health plans (not


under the ACA (other rules apply)

Plan Documents. If an individual has a permitted election change event and the desired change is

consistent with the event, then it must be determined if the cafeteria plan document recognizes the

permitted election change event. If it does not (or the plan does not allow individuals not already on the

plan to elect benefits mid-year), the election change is not allowed. If the plan recognizes the change

event, not only does the cafeteria plan document have to allow the change, but the plan documents of the

component benefit must allow it as well (such as the underlying plan documents for the group health

plan).

Documentation and Timing. If the individual has a permitted election change event, the desired change

is consistent with the event, and the plan documents allow the change, documentation that all of those

requirements have been met should be made. A signed certification by the employee is sufficient. Under

ERISA, these records should be kept for at least eight years. Employees are permitted to make changes

electronically by self-certifying. The employer should keep electronic records of this change.

Plan administrators should administer election changes involving same-sex spouses in the same manner

that they handle election change requests for individuals with opposite-sex spouses.

Change in Status Events

As mentioned above, plans may allow participants to change elections based on an IRS-specified list of

change in status events.

Change in Marital Status

Both same-sex and opposite-sex marital status changes are qualifying events. Legal separations and the

commencement and termination of a domestic partnership are not. There is a narrow exception if a

domestic partnership changes an individual’s tax status. If a domestic partner qualified as a tax

dependent for health coverage purposes, this could trigger a qualifying event.

Change in the Number of Dependents

The change in a number of dependents can trigger a qualifying change in status event. Birth, adoption, or

placement for adoption will likely trigger a HIPAA special enrollment right, which creates a responsibility

for plans subject to HIPAA (discussed later). “Dependent” refers to tax dependent under IRS Code

Section 152, with an exception for accident and health coverage, under which a child to whom IRS Code

section 152(e) applies is treated as a dependent of both parents. IRS Code Section 152(e) involves rules

for divorced parents.


Change in Employment Status

A change in employment status that affects an individual’s eligibility for a benefit is a permissible change

in status event. The following events are a change in status of an employee (or their spouse, or

dependent):

Termination or beginning of employment

Strike or lockout

Return from or beginning of an unpaid leave of absence

Change in worksite

If benefits eligibility is dependent upon employment status, and that status changes (such as a move from

full time to part-time), this can be a qualifying event. However, unless a plan-allowed “reduction in hours

or cost change event” (discussed below) occurs when an individual becomes part-time but is still benefits

eligible, it is not a qualifying event.

A Dependent Satisfying or Ceasing to Satisfy Dependent Eligibility Requirements

If a tax dependent satisfies or ceases to satisfy the requirement for coverage due to aging out, changing

student status, marriage, etc., this is a qualifying event. Practically speaking, due to the ACA’s

requirement to provide health coverage to children under the age of 26, marriage and student status

changes are unlikely to trigger a qualifying event for health coverage. This might not be the case for other

benefits such as vision or dental coverage.

Change in Residence

A change in residence that affects eligibility for coverage would be a qualifying event. The move must result

in a loss of eligibility for coverage. FSAs cannot be changed due to a residence change. If, for example, an

individual was covered by an HMO and moved out of the network of providers, the employee could be

permitted to drop coverage (if no other coverage was offered by the employer) or elect different coverage.

Keep in mind that a carrier’s network may have providers at the employee’s residence or work location.

Commencement or Termination of Adoption Proceedings

For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination

of an adoption proceeding is a qualifying event.

Other Events that Allow a Change in Elections

Outside of the change in status events, the IRS recognizes other events that would allow a plan to permit

an individual to make an election change.

Significant Cost Changes

A plan may permit individuals to make election changes due to significant cost changes. For this rule to

apply the following must be met:

A benefit plan must be an eligible qualified benefit other than a health FSA.

The cafeteria plan document must include language regarding significant cost changes.

The cost-change being passed on in the form of changed participant contributions must be

significant.

A determination must be made whether any alternative coverage is similar.


Employees would only be permitted to revoke or drop coverage due to a cost change if no similar

coverage option is available, which is defined as “coverage of the same category of benefits for the same

individuals.” If an employer offers two medical plans, one that is expensive and one that is inexpensive,

regardless of the cost change, an employee would only be permitted to switch to the other plan, not

revoke coverage entirely. This rule would apply even if the two medical plans were very different, such as

an HMO versus a high deductible health plan (HDHP). There is no definition of what constitutes a

“significant” cost change, but the change can be employer or employee initiated.

Significant Coverage Curtailment or Reduction

Plans may allow employees to make mid-year election changes due to a significant coverage curtailment,

with or without a loss of coverage. The definition of coverage curtailment is not entirely clear, and the

regulations state that there is a significant curtailment of coverage “only if there is an overall reduction in

coverage provided under the plan so as to constitute reduced coverage generally.”

In the event of coverage curtailment without a loss of coverage, a participant is only permitted to revoke

his or her election and elect similar coverage. If there is a loss of coverage, participants may only revoke

elections if “no similar benefits package” is available. Again, if an employer offered two medical plans, the

employee would only be permitted to elect the second plan.

Addition or Significant Improvement of Benefit Package Option

In the event an employer adds a new benefit package option or other coverage option, or if an existing

option is significantly improved, eligible employees (including those who had not previously made an

election) may revoke their election and make new elections on a prospective basis for coverage under the

new plan or option. The term “significant improvement of coverage” is not defined but generally an

increase in medical providers available in network is an improvement. If only one component of the

cafeteria plan has an addition, changes can only be made to the election of that component.

Change in Coverage under Another Employer Plan

A cafeteria plan my permit a participant to make election changes due to a change in coverage under

another employer plan. This would be triggered by one of two situations:

The other employer plan allows a permissible election change.

The other employer plan has a different period of coverage.

Example: Susan and John each have medical coverage from their individual employers. Susan’s

employer has a fiscal year plan; John’s employer has a calendar year plan. Susan and John are

married and make no changes to their elections at that time. Six months after getting married they

determine that they would like to be on the same plan. Shortly thereafter, Susan’s plan has open

enrollment. She drops her employer coverage during open enrollment, thus triggering a permissible

change that would allow John to enroll her in his employer’s plan.

Loss of Group Health Coverage

A plan may allow participants to make changes due to the loss of coverage under other group health

coverage, such as a state children’s health insurance program (CHIP), a medical program of an Indian

Tribal government, a state health benefits risk pool, or a foreign government group health plan. This

change applies only to the loss of coverage, not to a gain. Loss of coverage from an educational

institution would also qualify.


HIPAA Special Enrollment Rights

Group health plans subject to HIPAA must provide special enrollment for certain individuals. Plans are not

required to allow pre-tax election changes for HIPAA special enrollment events; however the

administrative overhead of handling these changes on an after-tax basis is often unduly burdensome.

HIPAA special enrollment rights overlap with other change in status events. The other events are

permissive, but HIPAA enrollment events require the ability to make health coverage changes. HIPAA

special enrollment rights also allow a limited ability to elect retroactive coverage on a pre-tax basis.

HIPAA special enrollment events also obligate the employer to offer a special enrollment period of a

minimum specific duration, typically 30 or 60 days depending on the event.

HIPAA special enrollment events include the loss of health coverage, acquisition of a new dependent (by

marriage, birth, adoption, or placement for adoption) and loss of Medicaid or CHIP coverage.

Enrollment due to loss of coverage under a group health plan means loss of eligibility for non-COBRA

coverage, termination of employer contributions toward non-COBRA coverage, or exhaustion of COBRA

coverage. It could also apply to the loss of student or private insurance. HIPAA special enrollment events

permit employees to add coverage for other dependents at the same time.

Although retroactive elections are typically prohibited, under HIPAA if a newborn or child who is adopted

or placed for adoption is enrolled during the special enrollment period, the child can have retroactive

coverage to the date of birth, adoption, or placement for adoption.

COBRA Qualifying Events

A plan may permit an individual to make changes due to COBRA qualifying events. This would allow an

individual who went part-time, lost benefit eligibility and thus elected COBRA, to increase his or her salary

reductions to pay the increased COBRA cost. This would only be permissible if the individual lost health

plan eligibility but not cafeteria plan eligibility. An individual whose child elected COBRA after reaching

age 26 could also make a mid-year election change to increase pre-tax deductions to pay for the

coverage for the rest of the taxable year.

Judgments, Decrees, and Orders

A plan may allow election changes due to a judgment, decree, or court order, including qualified medical

child support orders (QMCSOs). Plan sponsors are not required to allow this change, but not doing so

would create a legal conflict if the plan documents and court order are at odds. This exception allows

employees to enroll a child in coverage or drop a child from coverage, as ordered by the court. This

exception does not include voluntary changes in health coverage between a child’s parents.

Medicare or Medicaid Entitlement

A plan may allow employees to drop or reduce coverage for themselves, their spouse, or dependents,

when any of those covered individuals gain Medicare or Medicaid entitlement. If an employee drops

coverage under the cafeteria plan for himself or herself, he or she should consider the impact on their

covered spouse’s or dependents’ eligibility under their group plan.

FMLA Leave of Absence

A plan may allow election changes due to leaves of absence under FMLA. FMLA requires covered

employers to permit eligible employees to take a certain amount of unpaid job-protected leave. An

employer must maintain coverage under any group plan during FMLA leave at the level and under the


conditions that would have been met if the individual had not gone on leave. However, a plan may allow

an employee to revoke or continue coverage, or discontinue employee contributions. Upon return from

leave, the employee has the right to have coverage reinstated if their coverage was terminated during the

leave (for example, for failure to pay premiums). To pay for the continued coverage the employee may

prepay, make ongoing payments, or make catch-up contributions.

Pre-Tax HSA Contributions

Employees may make changes to HSA contributions through pre-tax salary reductions at any time during

the year, as long as the change is effective before the salary to which the change applies becomes

available to the employee.

Reduction of Hours

One of the newest allowed events (beginning September 18, 2014), a plan may allow a participant whose

hours are reduced below 30 hours a week as a result of a change in employment status to drop his or her

employer-sponsored health coverage mid-year, regardless of whether the hour reduction caused a

change in the employee’s eligibility status. The IRS gave two conditions that must be met:

1. The employee has been in an employment status under which the employee was reasonably

expected to average at least 30 hours of service per week and there is a change in that

employee's status so that the employee will reasonably be expected to average less than 30

hours of service per week after the change, even if that reduction does not result in the employee

ceasing to be eligible under the group health plan; and


intended enrollment of the employee, and any related individuals who cease coverage due to the

revocation, in another plan that provides minimum essential coverage with the new coverage

effective no later than the first day of the second month following the month that includes the date

the original coverage is revoked.

This would allow an employee, otherwise locked into coverage due to his or her employer’s use of the

ACA’s measurement and stability period, to drop coverage during a stability period. Because this is a new

optional event, employers that wish to provide the opportunity to employees should amend their plans.

Exchange or Marketplace Enrollment

Another change under the ACA, the Exchange/Marketplace enrollment event permits plans to allow

participants who are eligible to enroll in Exchange/Marketplace coverage during a special enrollment

period to drop employer-sponsored health coverage mid-year, so long as the employee intends to enroll

in Exchange/Marketplace coverage. The employer only has to obtain a reasonable representation from

the employee that he or she intended to enroll on the Exchange. The following conditions must be met for

this change:

1. The employee is eligible for a special enrollment period to enroll in a qualified health plan through

an Exchange/Marketplace pursuant to guidance issued by the Department of Health and Human

Services and any other applicable guidance, or the employee seeks to enroll in a qualified health

plan through an Exchange/Marketplace during the Marketplace's annual open enrollment period;

and



intended enrollment of the employee and any related individuals who cease coverage due to the

revocation in a qualified health plan through an Exchange/Marketplace for new coverage that is

effective beginning no later than the day immediately following the last day of the original

coverage that is revoked.

Because this is a new optional event, employers that wish to provide the opportunity to employees should

amend their plans.

6/29/2015




IRS Releases Draft 2015 Forms for 6055/6056 Reporting

Background

Under the Patient Protection and Affordable Care Act (ACA), individuals are required to have health

insurance while applicable large employers (ALEs) are required to offer health benefits to their full-time

employees. In order for the Internal Revenue Service (IRS) to verify that (1) individuals have the required

minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3)

ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time

or full-time equivalent employees and insurers will be required to report on the health coverage they offer.

Reporting will first be due early in 2016, based on coverage in 2015. All reporting will be for the calendar

year, even for non-calendar year plans. Mid-size employers (those with 50 to 99 employees) will report in

2016, despite being in a period of transition relief in regard to having to offer coverage. The reporting

requirements are in Sections 6055 and 6056 of the ACA.

Draft 2015 Forms

The IRS has issued draft 2015 forms, which include a few changes from the 2014 forms. The biggest

difference between the 2014 and 2015 versions are on Form 1095-C, which in 2015 will likely include

(assuming the draft forms are finalized as they currently appear) a “plan start month” field, allowing a filer

to indicate the first month of the ALE’s plan year. The draft instructions indicate this would be optional for

2015. ALEs could use the 2014 format instead of filling out the information, or in the alternative may either

fill out the first month of the plan year or fill in “00” rather than the actual first month. Beginning in 2016

this field would be required. Currently it is unclear if employers can use the 2014 forms if they choose to

use the 2014 format, or if they should use the 2015 format and leave the field blank.

In 2016 it is anticipated that for Form 1095-C, there will be two new indicator codes for Line 14. These

codes would indicate if an offer of coverage to an employee’s spouse is a conditional offer.

Continuation sheets have been added to Part III of Form 1095-C and Part IV of Form 1095-B.


Draft 1094-C (Transmittal/cover sheet)

Draft 1095-C (Reports to individuals and IRS on coverage offered)

Draft 1094-B (Transmittal/cover sheet)

Draft 1095-B (Report to individuals and the IRS on MEC)

A more detailed overview of employer reporting requirements can be found in the UBA documents "IRS

Releases Final Reporting Regulations" and "IRS Issues Final Forms and Instructions for Employer and

Insurer Reporting Forms."

Which forms for self-funded plans?

As a refresher, employers with fewer than 50 employees, with a self-funded plan will complete Forms

1094-B and 1095-B for all individuals that participated in the plan during the year. Employers with more

than 50 employees and a self-funded plan will first have to determine if they covered non-employees

(such as former employees on COBRA, retirees, and board members). If they covered these non-

employees on their plan, they will complete Forms 1094-B and 1095-B for non-employee participants,

and then complete Forms 1094-C and 1095-C parts I, II, and III for all full-time employees (regardless of

enrollment or eligibility) and any other employees that participated. However, if they do not cover the

above-listed non-employees, they will only complete Forms 1094-C and 1095-C parts I, II and III for all

full-time employees (regardless of enrollment or eligibility) and any other employees that participated in

the plan year.

Which forms for fully-insured plans?

An employer with fewer than 50 employees that offers a fully-insured plan will have no employer

reporting, and the insurer will submit Forms 1094-B and 1095-B.

An employer with more than 50 employees and a fully-insured plan will complete Forms 1094-C and

1095-C (Parts I and II) for all full-time employees (regardless of enrollment or eligibility) and any other

employees that participated in the plan during the calendar year.

6/22/2015




http://www.irs.gov/pub/irs-dft/f1094c--dft.pdf?elqTrackId=2c68aaae91114aa2815a1ef5f48fec62&elq=da2d63bf21e64caba781be132e2956fe&elqCampaignId=2285&elqaid=9385&elqat=1

http://www.irs.gov/pub/irs-dft/f1095c--dft.pdf?elqTrackId=369dcd57384b4c3aa6ffb34b31d5a600&elq=da2d63bf21e64caba781be132e2956fe&elqCampaignId=2285&elqaid=9385&elqat=1

http://www.irs.gov/pub/irs-dft/f1094b--dft.pdf?elqTrackId=566664d0ca604de0958e69984ecf9fcb&elq=da2d63bf21e64caba781be132e2956fe&elqCampaignId=2285&elqaid=9385&elqat=1

http://www.irs.gov/pub/irs-dft/f1095b--dft.pdf?elqTrackId=81bd4b49f5f242b5aa20e3220fd4f32b&elq=da2d63bf21e64caba781be132e2956fe&elqCampaignId=2285&elqaid=9385&elqat=1

http://wn4.ubabenefits.com/DesktopModules/Bring2mind/DMX/Download.aspx?portalid=0&EntryId=30550




Summary of Benefits and Coverage (SBC)

Frequently Asked Questions

Updated June 2015

General Information

Q1. What is a Summary of Benefits and Coverage?

A1. A Summary of Benefits and Coverage (SBC) is four-page (double-sided) communication required

by the federal government. It must contain specific information, in a specific order and with a

minimum size type, about a group health benefit’s coverage and limitations.

Q2. Who must provide an SBC?

A2. For fully insured plans, the insurer is responsible for providing the SBC to the plan administrator

(usually this is the employer). The plan administrator and the insurer are both responsible for

providing the SBC to participants, although only one of them actually has to do this.

For self-funded plans, the plan administrator is responsible for providing the SBC to participants.

Assistance may be available from the plan administrator’s TPA, advisor, etc., but the plan

administrator is ultimately responsible. (The plan administrator is generally the employer, not the

claims administrator.)

Q3. When is an SBC required?

A3. An SBC is required whenever application or open enrollment materials are provided to new hires or

current employees. If no application or open enrollment materials are given, an SBC must be

provided when the person can first enroll.

Q4. Are any plans exempt from this requirement?

A4. No. This requirement applies to all employers – private, government, and not-for-profit, fully insured

and self-funded, grandfathered and non-grandfathered. There is no minimum employer size to have

this obligation.


However, there is a delayed effective date for closed blocks of insured business. An SBC does not

need to be provided unless the Department of Labor issues additional instructions if:

The insured product is no longer being actively marketed;

The health insurer stopped actively marketing the product prior to September 23, 2012; and

The health insurer has never provided an SBC with respect to the insured product.

In addition, expatriate plans do not have to provide SBCs until the 2016 plan year. (An expatriate

plan is one designed to cover employees who are living overseas.)

Q5. What types of plans must provide SBCs?

A5. All group health plans must provide SBCs unless they are specifically exempted. Exempted plans

include:

Standalone dental and vision

Health FSAs unless the plan is not an “excepted benefit” (see Q&A 16 for details)

Retiree only plans

Medicare supplement (Medicare Advantage)

Hospital indemnity and specified diseases

Long-term care

Accident and disability

Q6. Are SBCs needed for wellness programs, EAPs and HRAs?

A6. In certain circumstances, yes. See Q&As 12 - 14.

Completing the SBC

Q7. What information must be included in an SBC?

A7. An SBC must contain:

Uniform definitions of standard insurance terms and medical terms (provided in the glossary)

A description of the coverage for certain categories of benefits

The exceptions, reductions, and limitations of the coverage

The cost-sharing provisions of the coverage (deductible, coinsurance, and copayment

obligations)

A statement as to whether the plan offers minimum essential and minimum value coverage (until

the template, for use beginning in 2017, is released, this information can be provided in a separate

letter)

The renewability and continuation of coverage provisions

Coverage examples

A statement that the SBC is only a summary and that the plan document, policy, certificate, or

contract of insurance should be consulted to determine the governing contractual provisions of

the coverage

Contact information for questions and obtaining a copy of the plan document or the insurance

policy, certificate, or contract of insurance (such as a telephone number for customer service

and an Internet address for obtaining a copy of the plan document or the insurance policy,

certificate, or contract of insurance)

For plans and issuers that maintain one or more networks of providers, an Internet address (or

similar contact information) for obtaining a list of network providers


For plans and issuers that use a formulary in providing prescription drug coverage, an Internet

address (or similar contact information) for obtaining information on prescription drug coverage

An Internet address for obtaining the uniform glossary, a contact phone number to obtain a

paper copy of the uniform glossary, and a disclosure that paper copies are available

Qualified health plan issuers must disclose whether abortion services are covered or excluded,

and whether coverage is limited to excepted abortion services, for plans sold through an

individual market Exchange. Until the template and associated documents are finalized and

applicable, individual market issuers may adopt reasonable wording and placement of the

disclosure on the SBC.

Important: The agencies have issued very specific instructions on how to complete the SBC. If

you are completing an SBC, you need to read and follow the instructions. The instructions are

available at http://www.dol.gov/ebsa/pdf/SBCInstructionsGroup.pdf.

Since these instructions were issued, the DOL has made a few liberalizations. They are:

If a plan’s terms deviate significantly from the template or instructions, you may modify the

template/entries to the extent needed to be accurate.

You only need to include the footer on the first and last page and the header only needs to be

on the first page.

When completing the header, either the company name, any insurer name or the plan name

can be listed first.

If there are multiple plan options, list the name commonly used; if there is no common name, a

generic name is fine.

The requirement to provide an Internet address to obtain an actual individual underlying policy

or group certificate do not apply to self-insured plans. Related obligations of availability of the

documents under ERISA and the Department of Labor claims procedures still apply to self-

funded plans. The government “encourages issuers” to make all relevant policy documents

easily accessible.

In addition, for 2014 and 2015 employers and carriers may address the prohibition on annual dollar

limits for essential health benefits by either:

Deleting the row that asks about annual limits; or

Completing the annual limits question with “no” and stating in the “Why It Matters” column: “The

chart starting on page 2 describes any limits on what the plan will pay for specific covered

services, such as office visits.”

A blank SBC to use with 2014 and 2015 plan years is at

http://www.dol.gov/ebsa/correctedsbctemplate2.doc.

A sample completed SBC for 2014 and 2015 is at

http://www.dol.gov/ebsa/pdf/CorrectedSampleCompletedSBC2.pdf.

Q8. What changes have been made to the SBC for 2015, 2016, or 2017?

A8. There are no changes for 2015 to either the template or the examples (including costs) that must be

completed in the SBC, to the glossary that must accompany the SBC or to the SBC calculator. A

June 2015 Final Rule announced that a new template and associated documents will be finalized

by January 2016, and will apply to coverage that will renew or begin on the first day of the plan year

(or policy year) that begins on after January 1, 2017.


http://www.dol.gov/ebsa/pdf/SBCInstructionsGroup.pdf

http://www.dol.gov/ebsa/correctedsbctemplate2.doc

http://www.dol.gov/ebsa/pdf/CorrectedSampleCompletedSBC2.pdf

http://www.gpo.gov/fdsys/pkg/FR-2015-06-16/pdf/2015-14559.pdf

Q9. Do I need a separate SBC for each benefit option?

A9. You do not need a separate SBC for each benefit option as long as you can illustrate multiple

options clearly. So, for example, you can show multiple coverage tiers and

deductible/coinsurance/copay options on one SBC if the balance of the coverage is very similar. If

you prefer to create a separate SBC for each tier, PPO option, etc., that is fine, too.

Q10. How do I handle dental benefits?

A10. Stand-alone dental benefits (those that are elected separately from medical) do not need an SBC.

You would list “Dental Care (Adult)” as a “Service Your Plan Does Not Cover” since it is not

covered under the medical plan that the SBC is describing.

Integrated dental benefits (those that are elected as part of medical) would be listed as “Dental

Care (Adult)” under “Other Covered Services,” with no additional detail given.

Q11. How do I handle vision benefits?

A11. Stand-alone vision benefits (those that are elected separately from medical) do not need an SBC.

You would list “Routine eye care (Adult)” as a “Service Your Plan Does Not Cover” since it is not

covered under the medical plan that the SBC is describing.

Integrated vision benefits (those that are elected as part of medical) would be listed as “Routine eye

care (Adult)” under “Other Covered Services,” with no additional detail given.

Q12. How do I handle an HRA?

A12. Beginning in 2014, most HRAs will need to be integrated with a medical plan. If the HRA is

integrated with the medical plan, you may include the amount of the employer contributions to the

HRA to the extent they are available to reduce deductibles, etc. and explain the HRA contribution is

available for cost sharing.

A standalone HRA will need an SBC. The employer should complete the SBC to reflect the HRA’s

coverage (which means that many sections will be completed as “not applicable”).

Q13. How do I handle an EAP?

A13. If the EAP is a group health plan, it will need an SBC. It may be possible to note those services on

the medical SBC (see the sample Coverage Example for diabetes in the SBC instructions for a

possible approach); if the services are not part of the health plan or are very complex, the employer

should complete the SBC to reflect the EAP’s coverage (which means that many sections will be

completed as “not applicable”).

Note: Because of the variety of services provided by EAPs, it is not possible to say whether all

EAPs are or are not “group health plans.” In general, the more medical care that is provided by the

EAP, the likelier it is that the EAP is a group health plan. So, for example, an EAP that only

provides education or referrals would not be a group health plan. An EAP that provides significant

direct counseling probably is a group health plan.

Q14. How do I handle a wellness program?

A14. A wellness program that is a group health plan will need to provide an SBC. If the wellness program

is a part of the health plan you may include a brief description of those services and/or incentives

on the medical SBC. See the sample Coverage Example for diabetes in the SBC instructions for a

possible approach if completion of the program reduces the deductible, coinsurance or copays. If a


wellness program simply affects the health plan premium, it will not affect the medical plan SBC

(unless the SBC includes the premium) and a separate SBC is not needed.

Note: Because of the variety of approaches taken by wellness programs, it is not possible to say

whether all wellness programs are or are not “group health plans.” In general, the more medical

services the program provides, the greater the chance it is a group health plan. Whether a health goal

is involved also matters. So, for example, if the reward for completing a health risk assessment is a

gift card, and no action is taken based on the person’s HRA results, the program is not a group health

plan and no SBC is needed. If the wellness program provides medical care (e.g., special services for

diabetics), it is likely that the wellness program is a group health plan.

Q15. How do I handle an HSA?

A15. HSAs are not considered “group health plans” and do not need an SBC (although the underlying

high deductible health plan will need one). Employers may include the amount of any employer

contribution to an HSA to the extent they are available to reduce deductibles, etc. and explain the

HSA contribution is available for cost sharing.

Q16. How do I handle an FSA?

A16. An SBC is not needed for an FSA if the health FSA is an “excepted benefit.” To be an “excepted

benefit” the employee must also be eligible for group medical coverage through the employer, and

any employer contribution may not exceed two times the employee’s health FSA contribution plus

$500. If an employer makes any health FSA contributions, it may include the amount of any

employer contribution to the health FSA to the extent they are available to reduce deductibles, etc.

and explain the FSA contribution is available for cost sharing.

Q17. How do I handle carve-out benefits (such as prescription drug or behavioral health)?

A17. Through at least 2015, fully insured plans have several options:

They can arrange with one insurer to include the information from the other insurer.

They can combine the two into a single SBC themselves.

They can provide each SBC, with a note advising participants that coverage is provided by

more than one carrier, the SBCs should be read together, and the plan administrator can be

contacted for help with understanding how the coverages work together; plan administrator

contact information must be provided.

Self-funded plans will need to do their best to combine the multiple coverages into a single SBC.

Q18. Do I need to include information on premiums/contributions?

A18. Premium and contribution information is not required.

Q19. Can I include information on premiums/contributions?

A19. Yes, but it must be provided at the end of the SBC.

Q20. If the plan is grandfathered, do I need to state this?

A20. No, this disclosure is not needed on the SBC. If you wish to include a statement that the plan is

grandfathered you can, but it must be at the end of the SBC.


Q21. Can I simply reference the SPD in the SBC?

A21. You cannot substitute a reference to the SPD for any required information. You can create a

footnote advising the reader to consult the SPD or certificate for more information, including a

reference to particular page numbers for more information about a specific item.

Q22. Can I change the format or order of the SBC?

A22. Generally, no. You can widen columns.

Q23. Can I reword the “Why It Matters” responses?

A23. No.

Q24. Must the SBC be in color?

A24. No, it can be in color or grayscale.

Q25. Why is this so inflexible?

A25. The purpose of the SBC is to make it easier for employees to compare coverage options. The

regulatory agencies believe that consistent presentation will make it easier for employees to do

side-by-side comparisons.

Q26. How often do I need to update the SBC?

A26. You only need to update the SBC at renewal/open enrollment unless you make a material change

during the year. In that case, at least 60 days before the effective date of the change, you must

either distribute an updated SBC or provide written notice of the change. Distributing the revised

SBC or notice will qualify as a summary of material modifications (SMM) for ERISA purposes.

Q27. What is a material change?

A27. A material change is something addressed in the SBC that the average participant would consider

important, like a change in deductible, coverage for a new benefit or a whole new network. It can be

an increase in benefits or a reduction. Regulatory changes normally will not be considered a

material change that would require a mid-year notice or reissuance of the SBC.

Completing the Coverage Examples

Q28. How do I prepare the coverage examples?

A28. The coverage examples are based on information provided by the regulatory agencies regarding

the projected dates of service and the anticipated cost of certain prescribed services (maternity and

care of diabetes; the cost of services in the examples are the same for 2013, 2014 and 2015). The

plan’s actual cost sharing (deductible, co-pays and coinsurance) and any applicable exclusions or

limits should be used to illustrate the “Patient pays” entries.

Q29. If I illustrate several benefit options in one SBC, what do I base the comparison on?

A29. You should illustrate self-only coverage and clearly state on the SBC that self-only coverage is

being illustrated.


Q30. Has the government provided any assistance with these calculations?

A30. HHS/CMS has posted a calculator that can be used by employers to complete the comparison.

Employers are not required to use this calculator.

The calculator and instructions are available at Other Resources - Centers for Medicare & Medicaid

Services (scroll down to Summary of Benefits and Uniform Coverage).

Q31. The costs we are supposed to use in the examples are much more (or less) than we typically

see. Can/should I use my plan’s data?

A31. No. Employers must use the HHS-supplied costs, even though they may not reflect their

plan’s experience. (The idea is that if costs in the examples are uniform, employees will be better

able to understand how cost sharing will work under the options they are considering.)

Q32. I am worried that my employees will think the amounts shown in the examples are what the

plan and they will pay if they actually have a baby or are treated for diabetes.

A32. The Coverage Examples sheet states in large print that it is not a cost estimator, and test groups

apparently understood this. In any event, the agencies have considered the issue and believe this

approach is best.

Providing the Glossary

Q33. What is the glossary?

A33. The glossary is a required, standard glossary of 44 terms frequently used with group health plans.

Q34. Can I alter it to better fit my situation?

A34. No. If there is a significant difference between the plan’s and the glossary’s terms, you can address

this on the SBC (presumably through a footnote). To reduce participant confusion, it may make

sense to revise your plan’s terminology to match the glossary terminology, when possible.

Q35. Must I provide copies of the glossary with the SBC?

A35. No, but you must:

Tell participants at the bottom of the first page of the SBC where the glossary is posted (it can

be on the employer’s website, the insurer’s website, or an agency website). The government

version is posted at http://www.dol.gov/ebsa/pdf/SBCUniformGlossary.pdf.

Mail a paper copy within seven business days after receiving a request for a paper glossary.

Distributing the SBC

Q36. Who is responsible for providing an SBC?

A36. The insurer is responsible for providing an SBC to the employer within seven days after the

employer completes an application. The insurer and the plan administrator are each responsible for

providing the SBC to participants, but only one of them needs to actually do it – they need to work

out who will do the distribution. For self-funded plans, the plan administrator is responsible for

providing the SBC. The plan administrator can hire others, like its TPA, to help, but the plan


http://www.cms.gov/cciio/Resources/forms-reports-and-other-resources/index.html#sbcug

http://www.cms.gov/cciio/Resources/forms-reports-and-other-resources/index.html#sbcug

http://www.dol.gov/ebsa/pdf/SBCUniformGlossary.pdf

administrator is ultimately responsible. If an entity required to provide an SBC enters into a binding

contract with another entity to provide the SBC the following conditions must be met:

The first entity must monitor the performance of the contract.

The first entity must correct any noncompliance of the contract of which it becomes aware.

If the first entity becomes aware of non-compliance that it cannot correct, it communicates with

the individuals affected and takes significant steps to correct the non-compliance.

Q37. Who must receive an SBC, and when?

A37. SBCs must be provided:

At open enrollment

- The SBC must be included with the open enrollment materials.

- Only the SBC for the option the employee is currently enrolled in must be provided (if you

would rather provide all SBCs instead, you may).

- If the employee asks for the SBC for other options, those SBCs must be provided within

seven business days.

- SBCs must be provided to current employees, retirees (unless they are enrolled in a

retiree-only plan) and COBRA beneficiaries.

At renewal if there is no open enrollment

- If the prior year’s election simply carries over, the SBC for the employee’s current coverage

must be provided at least 30 days before the new plan or policy year. (If the plan or policy

has not been reissued or renewed by then, the SBC is due as soon as possible after

renewal/reissue, and in no event later than seven business days after either the new policy

is issued or a written confirmation of an intent to renew is received.)

- If the employee asks for the SBC for other options, those SBCs must be provided within

seven business days.

- SBCs must be provided to current employees, retirees (unless they are enrolled in a

retiree-only plan) and COBRA beneficiaries.

At initial enrollment

- The SBC for all options the employee may choose among must be provided with the

enrollment materials.

- If no enrollment materials are provided, the SBC for all options must be provided by the first

day the new employee may enroll.

At special enrollment

- The SBC for the option the individual is enrolled in must be provided within 90 calendar

days after enrollment as a special enrollee.

- The SBC must be provided within seven business days after a request for the SBC, if

sooner.

With a material mid-year change (see Q&A 27)

- 60 days before the effective date of the change.


To prevent duplication, if a plan or issuer provides an SBC prior to application for coverage, the

plan or issuer is not required to automatically provide another SBC upon application, if there is no

change to the information required to be in the SBC. If there is a change, then the plan or issuer

must update and provide a current SBC as soon as practicable upon receipt of the application, but

no later than seven days after receipt. Furthermore, if the terms of coverage are still being

negotiated after an application has been filed and SBC information changes, the plan or issuer is

not required to provide an updated SBC until the first day of coverage (unless it is requested, in

which case, the seven days rule applies).

Q38. What does “within seven business days” mean?

A38. The SBC must be postmarked, faxed or emailed by the close of the seventh business day after the

request is received. (A response to a request for a paper copy must be mailed or faxed. If a request

for an SBC is made electronically, the SBC can be provided electronically, with the usual statement

that free paper copies can be requested.)

Q39. Do I need to provide an SBC to covered family members?

A39. A separate SBC does not need to be provided to covered family members unless you are aware

that a family member lives at another address. In that case the person living away needs their own

SBC.

Q40. Can I include the SBC in my SPD?

A40. You may include the SBC in the SPD as long as:

It is prominently displayed – e.g., right after the table of contents or introduction; and

The entire SBC is inserted, without adding any material between its pages or sections or

deleting any part of the SBC.

Q41. Can I provide the SBC electronically?

A41. It depends on the situation.

If enrollment is exclusively online, the SBC can be provided online.

If enrollment is not exclusively online, there are different rules for new enrollees and current

participants.

For new enrollees:

- The SBC must be reasonably accessible (e.g., posted on the employer’s intranet or

website).

- The employee must be notified that the SBC is available, where it is located (with the

Internet address or a link) and that a paper copy is available at no cost, with contact

information to request a paper copy.

For enrolled employees:

- If the employee regularly uses a computer as part of his job the SBC or notice of where the

SBC is posted must be sent to the computer the employee regularly uses, with an

explanation of the significance of the SBC and that a paper copy is available at no cost with

contact information to request a copy.


- If the employee does not regularly use a computer as part of his job, the SBC may not be

provided electronically.

For enrolled retirees, COBRA participants and special enrollees who do not live with the

employee:

- The person must provide consent to email the SBC/plan materials and provide his email

address.

- If the person does not provide the consent and email address, the SBC may not be

provided electronically.

An individual must always have the option to receive a paper copy upon request.

Q42. Is there sample notification language?

A42. Yes. The agencies have provided sample language (which you may, but are not required to, use).

Availability of Summary Health Information

As an employee, the health benefits available to you represent a significant component of

your compensation package. They also provide important protection for you and your family

in the case of illness or injury.

Your plan offers a series of health coverage options. Choosing a health coverage option is

an important decision. To help you make an informed choice, your plan makes available a

Summary of Benefits and Coverage (SBC), which summarizes important information about

any health coverage option in a standard format, to help you compare across options.

The SBC is available on the web at: www.website.com/SBC. A paper copy is also

available, free of charge, by calling 1-XXX-XXX-XXXX (a toll-free number).

Q43. How may I provide notice that the SBC is available electronically?

A43. The notice that the SBC is available electronically can be mailed (many employers send a postcard)

or emailed (with a “return receipt” feature).

Q44. If I provide SBCs electronically, can I display the SBC on a single web page with scrolling

features, allow sorting by feature, and/or widen columns?

A44. Yes, as long as a paper version with the pages set up as required is available. Columns and rows

may not be deleted unless the agencies specifically allow this (as they have done with deleting the

annual limits row in 2014 and 2015).

Other Languages

Q45. Are there requirements to provide the SBC in languages other than English?

A45. Yes. Similar to the requirement to provide SPDs in languages other than English in certain

situations, the SBC must be provided in Chinese, Navajo, Spanish and Tagalog if issued in

counties where more than 10 percent of the population is literate only in one of these languages.

The English version of the SBC distributed in those counties must disclose the availability of

language services on the page of the SBC that includes the “Your Rights to Continue Coverage”


and “Your Grievance and Appeals Rights” sections. The Department of Labor has provided this

sample language:

SPANISH (Español): Para obtener asistencia en Español, llame al [insert telephone number]. TAGALOG (Tagalog): Kung kailangan ninyo ang tulong sa Tagalog tumawag sa [insert telephone number].

CHINESE (中文): 如果需要中文的帮助，请拨打这个号码 [insert telephone number].

NAVAJO (Dine): Dinek'ehgo shika at'ohwol ninisingo, kwiijigo holne' [insert telephone number].

Q46. Can I include the information about language assistance services even if the SBC is being

provided in a county that does not need to include this disclosure?

A46. Yes.

Q47. How can I determine if I have employees in a county that needs a translated version?

A47. The Department of Health and Human Services has posted a list of the counties that meet the 10%

threshold at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-

CLAS-County-Data_12-05-14_clean_508.pdf.

Q48. Are translated versions of the SBC and glossary available?

A48. Yes. You can access them at http://cciio.cms.gov/resources/other/index.html#sbcug.

Other Disclosure Requirement and Penalties

Q49. Does this replace my SPD, certificate or any summary I usually provide at open enrollment?

A49. No, the SBC does not replace your SPD or certificate. If you already provide a summary of benefits,

you can continue to provide it and also provide the SBC, but you cannot provide anything instead of

the SBC.

Q50. My state also has disclosure requirements. Must I follow them, too?

A50. If a state imposes additional requirements, those requirements also must be met (possibly in a

separate document due to the strict formatting rules that apply to SBCs).

Q51. What happens if I don’t provide an SBC?

A51. The penalties for willful (i.e., deliberate) failure to provide an SBC are up to $1,000 for each person

who should have received the SBC and did not. The penalty for negligent failure to provide is up to

$100 per day for each person who should have received the SBC and did not.

The regulatory agencies have said they will work with employers who have made good faith efforts

to comply but didn’t quite get it right.



6/152015 11 ©2015 United Benefit Advisors, LLC. All rights reserved.

http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-CLAS-County-Data_12-05-14_clean_508.pdf

http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-CLAS-County-Data_12-05-14_clean_508.pdf

http://cciio.cms.gov/resources/other/index.html#sbcug

U.S. Supreme Court Upholds ACA Subsidy Eligibility on Federal Exchanges

The Supreme Court issued its opinion in King v. Burwell, holding that the Internal Revenue Service (IRS)

may issue regulations to extend tax-credit subsidies to coverage purchased through Exchanges

established by the federal government under the Patient Protection and Affordable Care Act (ACA). The

six-to-three opinion was authored by Chief Justice John Roberts, who was joined by Justices Kennedy,

Ginsburg, Breyer, Sotomayor, and Kagan. Justice Scalia dissented, and was joined by Justices Thomas

and Alito.

Background

The case involved four Virginia plaintiffs who challenged the IRS ruling that individuals are eligible for the

premium subsidy regardless of whether their state has a state-run or federally-run Marketplace or

Exchange. The plaintiffs did not wish to purchase health insurance, and would have been required to with

the availability of premium tax credits. They contended that Section 36B, by its plain language, only

allowed premium subsidies for insurance purchased on Exchanges created by “states.” Since Virginia has

a federally-run Exchange, plaintiffs claimed that they were not eligible for premium subsidies, rendering

insurance unaffordable to them and exempting them from the ACA’s requirement to purchase coverage.

The Kaiser Family Foundation reports that currently there are 14 states with state-based Marketplaces,

three with federally supported Marketplaces, seven with state-partnership Marketplaces, and 27 with a

Federally Facilitated Marketplace (FFM).

Supreme Court Ruling

Chief Justice Roberts, writing for the majority, boiled the case down to the question of “whether the Act’s

tax credits are available in States that have a Federal Exchange.” The opinion begins by describing the

ACA’s (or “the Act” as it is referred to in the opinion) three key reforms: (1) guaranteed coverage and

community rating; (2) the individual mandate or the requirement for all Americans to maintain health

insurance; and (3) making insurance affordable by giving refundable tax credits to individuals with

household incomes between 100 percent and 400 percent of the federal poverty level (FPL). “These three

reforms are closely intertwined,” and Congress was clear that the first reform’s success (guaranteed

coverage and community rating) was upheld by the coverage requirement, which in turn would only be

successful with the tax credits. This is because without tax credits, the cost of buying insurance would


http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf

exceed 8 percent of income for a large number of Americans, exempting them from the coverage

requirement. The Court ruled that the intertwined importance of the three was underscored by their

uniform effective date of January 1, 2014.

To reach its decision, the Court declined to follow the two-step framework of Chevron USA v. Natural

Resources Defense Council, that provides the Court a process to analyze an agency’s (in this case, the

IRS) interpretation of a statute. Noting that this case falls under the exception of “extraordinary cases” the

Court instead tasked itself with determining the correct interpretation of Section 36B. With that task in

mind, Chief Justice Roberts noted it was the Court’s duty to “construe statutes, not isolated provisions.”

With a thorough look at the language in Section 18041 of the ACA, definitions provided by the ACA, and

language in Section 18031 of the ACA, the Court could not conclude that the phrase “an Exchange

established by the State” is unambiguous. As a result, the Court was forced to turn to the broader section

of the ACA in order to determine the meaning of Section 36B. In its review of the language, Chief Justice

Roberts wrote that “The Affordable Care Act contains more than just a few examples of inartful drafting”

and provided the example that it contained three separate section 1563s. Chief Justice Roberts noted

that Congress wrote key parts of the Act behind closed doors, rather than through a more traditional

process, Congress used the reconciliation process to limit opportunities for debate and amendment, and

“as a result, the Act does not reflect the type of care and deliberation that one might expect of such

significant legislation.”

When turning to the broader structure of the Act, the Court held “the statutory scheme compels us to

reject petitioner’s interpretation because it would destabilize the individual insurance market in any State

with a Federal Exchange and likely create the very ‘death spirals’ that Congress designed the Act to

avoid.” To follow the petitioner’s (or plaintiff’s) interpretation would lead to the removal of tax credits,

which would then render the coverage requirement meaningless. With 87 percent of individuals

purchasing insurance on the Exchange with help from subsidies, the impact would not be small. Citing

Justice Scalia’s dissent in the cornerstone ACA case National Federation of Independent Business v.

Sebelius, the Court held it was implausible for Congress to operate the ACA in this manner, as “without

federal subsidies… the exchange would not operate as Congress intended and may not operate at all.”

The Court also considered, but rejected, the plaintiff’s argument that Congress was “not worried” about

the effects of withholding tax subsidies from states who chose not to operate an Exchange because

“Congress evidently believed it was offering the states a deal they would not refuse.” The Court

disagreed, holding that by setting up a federal fallback in case a state opted out of operating its own

Exchange, “it expressly addressed what would happen if a state did refuse the deal.”

Finally, the Court held that the structure of Section 36B suggests that tax credits are not limited to state

Exchanges due to its definition of “applicable taxpayer.” Relying on a previous holding that Congress

“does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions,” the

Court concluded that Congress “would not have used such a winding path of connect-the-dots provisions

about the amount of the credit.”

Affirming the 4th Circuit’s decision, the Court held that “Congress passed the Affordable Care Act to

improve health insurance markets, not destroy them. If at all possible, we must interpret the Act in a way

that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with

what we see as Congress’s plan, and that is the reading we adopt.”


Dissent

Justice Scalia authored the dissenting opinion, leading with “The Court holds that when the Patient

Protection and Affordable Care Act says ‘Exchange established by the State’ it means “Exchange

established by the State or the Federal Government.’ That of course is quite absurd and the Court’s 21

pages of explanation make it no less so.”

Finding that “words no longer have meaning if an Exchange that is not established by the State is

‘established by the State’,” Justice Scalia went on to find that “the normal rules of interpretation seem

always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved.”

Holding that Congress knew how to equate two different types of Exchanges when it wanted to do so,

and accusing the majority of engaging in “interpretive jiggery-pokery” Justice Scalia writes that although it

might not make sense to only allow tax credits to those on state Exchanges, the result would be odd, not

ambiguous.

Recognizing that mismatches often occur when lawmakers draft a single provision to cover diverse or

different types of situations, Justice Scalia further disagreed that the structure of Section 36B provides

support for tax credits for those on the federal Exchange, noting that many individuals are eligible for

various tax credits at the outset only to later be provided a credit amount of zero due to income

thresholds. Justice Scalia cited the child tax credit, the earned-income tax credit, and the first-time

homebuyer tax credit as examples.

Justice Scalia argues that the Court is wrong in both its decision to consult statutory purpose and its

analysis of it. Finding that the ambiguous language at issue was used in other parts of the law, Justice

Scalia argues that this was not “a slip of the pen,” but purposeful by Congress. Justice Scalia argued that

if Congress valued the ACA’s applicability to all, it had the power to make tax credits available on all

Exchanges.

Again rejecting the Court’s reasoning in the earlier case (in which he dissented) National Federation of

Independent Business v Sebelius, Justice Scalia noted “we should start calling this law SCOTUScare,”

and in conclusion held that the majority opinion shows the “discouraging truth that the Supreme Court of

the United States favors some laws over others, and is prepared to do whatever it takes to uphold and

assist its favorites.”

6/25/2015




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