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A Better Partnership


Oct 2014
October 16, 2014

Cafeteria Plans Can Now Permit Additional Election Changes

Employers who sponsor cafeteria plans can now allow their employees to change or revoke health-coverage elections under two additional circumstances, provided that certain conditions are met. These new election changes are designed to address problems that lock employees into coverage with an employer and prevent them from obtaining coverage through the Health Insurance Marketplaces established under the Affordable Care Act.

The first new exception is designed primarily for employers who have elected to use look-back measurement periods to determine an employee’s eligibility to participate in its health plan. Under the Affordable Care Act’s employer responsibility regulations, if an employee measured as a full-time employee during the look-back measurement period, the employee will be treated as a full-time employee during the following plan year—even if the employee begins working a part-time schedule. Depending on the employer’s eligibility rules, this employee may remain eligible to participate in the employer health plan even after the reduction in hours, which means that under existing regulations the employee will not experience a change of status event and will not be able to drop out of the employer’s plan to seek subsidized (and possibly more affordable) coverage through the Health Insurance Marketplace.

Under new Notice 2014-55, the IRS will now allow an employee to prospectively revoke his or her participation in the employer’s health plan, even if that employee’s eligibility status does not change, so long as (1) the employee was reasonably expected to work full-time (30 or more hours per week) before the change and is reasonably expected to work part-time (less than 30 hours) after the change and (2) the employee represents that he or she promptly intends to enroll in another plan that provides minimum essential coverage.

The second new exception addresses problems with non-calendar plan year plans and with special enrollment rights. When an employer has a non-calendar year health plan, the employer’s open enrollment period may not coincide with the Health Insurance Marketplace’s open enrollment period, effectively locking the employee into the employer’s health plan. And when an employee experiences a mid-year special enrollment right (for example, getting married, having a child or adopting a child), the current regulations only allow the employee to drop coverage with his or her employer if the employee is enrolling in another group health plan; the individual plans available through the Health Insurance Marketplace do not qualify.

Under Notice 2014-55, the IRS will now allow an employee to revoke his or her participation in the employer’s health plan so that he or she can enroll in coverage available through the Health Insurance Marketplace (1) during the Marketplace’s annual open enrollment period, or (2) if the employee becomes eligible for a special enrollment right in the Health Insurance Marketplace. Again, the employer may rely on the employee’s reasonable representation that he or she intends to enroll in coverage through the Health Insurance Marketplace.

What You Should Do Now: If you are interested in allowing your employees to be able to make these new election changes, you must amend your cafeteria plan. If you adopt this change during 2014, you have until the last day of the plan year starting in 2015 to amend the plan. After 2014, you must amend the plan by the last day of the plan year in which you allow these election changes.

If you have questions regarding the Notice or how to amend your cafeteria plan, contact Norbert Kugele at, April Goff at, Amy Fredrickson at, or any other member of the Warner Norcross and Judd LLP Employee Benefits / Executive Compensation Group.

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