By: HUB’s EB Compliance Team
New parents face many adjustments that come with having a baby, i.e., diapers, bottles and lack of sleep among others. With so much going on, it’s easy for them to overlook adding the child to their health insurance plan, which can cause problems for both them and the employer’s health plan.
As a reminder, health plan elections are irrevocable for the entire plan year unless a participant experiences a qualifying event. The qualifying events under the cafeteria plan rules are mostly optional, meaning plans have discretion over which, if any to include in their written documentation. However, one group of events, called HIPAA Special Enrollment Rights, apply to all plans subject to HIPAA. Gaining a new dependent through birth, adoption or placement for adoption is one such Special Enrollment Right. Plans must provide at least 30 days from this event for elections to be changed. While they can choose to be more generous than required, they can’t be less so.
Birth, adoption and placement are unique in the world of qualifying events because once elected, coverage will be retroactive to the date of the birth, adoption or placement (if the election is submitted within 30 days of the event). All other qualifying events, including marriage, divorce and loss of other health coverage only allow prospective changes. Those who wish to elect coverage for the newly acquired dependent must still elect coverage within the time allotted by the plan. Let’s use the following facts to describe what can happen when deadlines are missed.
Jim works for Paper Co and his wife Pam gives birth to their daughter Cecilia on 7/14/2018. The Paper Co plan allows 30 days from Cecilia’s birth for Jim to add her to the plan. Jim realizes on 8/22/2018 that he never added Cecilia to his plan.
No Coverage for Newly Acquired Dependent
The Paper Co plan complies with the HIPAA requirements since it provides 30 days from Cecilia’s birth for her to be added to the plan. Since the plan must be administered according to its written terms, once 30 days have lapsed, Cecilia cannot be added until open enrollment or Jim experiences another qualifying event that would allow him to add her. Unfortunately, Jim has no basis to ask the plan to stray from their written terms and allow him to enroll Cecilia.
Jim and Pam must now look elsewhere for medical coverage for Cecilia. The marketplace exchange would allow Cecilia to be enrolled in coverage so long as the enrollment occurs within 60 days of her birth. This isn’t ideal because it means Cecilia will have different coverage than Jim and Pam, including potentially different networks of providers; however it solves the issue of obtaining coverage. If more than 60 days has elapsed since her birth, the marketplace would cease to be an option and Cecilia would need her own individual policy to have coverage. Finally, Medicaid may also be an option depending on Jim and Pam’s income and their state of residence. The bottom line is that none of these alternatives are ideal.
Difficult Position for Paper Co
If there is ever a sympathetic reason to allow a plan exception it’s for the birth of a child. From the moment Cecilia was born she began incurring claims and through no fault of her own, she wasn’t enrolled in coverage. Plans may desire to make exceptions in these situations, but they may not be able to and, even if they are, they probably shouldn’t.
Fully-Insured vs. Self-Insured
As an initial matter, plans should not make exceptions. Doing so would conflict with the plan’s terms. ERISA requires that employers follow the terms of their plans. As a result, an exception would expose the plan fiduciaries to potential breaches of fiduciary duty claims, which can carry personal liability, whether the plan is insured or self-funded. This is especially true if the exceptions are not made part of the plan document and are given inconsistently. In that case, future participants may be able to claim that the plan should bend to their desires (on this or other issues) because the employer is not operating the plan by its written terms anyway.
Even if an employer wanted to make an exception, it may not even be able to do so. If the Paper Co plan is fully-insured, their insurance carrier will have the final say over whether Cecilia can be enrolled as a late enrollee.
If the Paper Co plan is self-insured, Paper Co may theoretically have more control over whether to make an exception and allow Cecilia to be enrolled. However just because they can make an exception, doesn’t mean they will or should make such an exception. First, allowing Jim to enroll Cecilia sets a precedent under the plan, meaning they would need to make this same exception for similarly situated late enrollees and should memorialize it in the plan.
Second, if the plan has stop-loss coverage, the stop loss carrier also may not pay for any claims incurred prior to Cecilia’s actual enrollment (or perhaps not any of her claims for that plan year at all).
Finally, whether a plan is insured or self-funded, it’s not clear that the cafeteria plan rules allow Cecilia’s coverage to be retroactive since the notice is being made more than 30 days after she was born. The preamble to the cafeteria plan rules suggests that premiums for retroactive coverage cannot be taken pre-tax if the notice is made after 30 days. This would mean Paper Co can only take pre-tax premium contributions from Jim’s pay for coverage going forward. While Paper Co could, in theory, allow retroactive coverage and just not collect the premiums, that could present nondiscrimination concerns (if Jim is highly compensated). Premiums for retroactive coverage may also be able to be collected after-tax in that scenario.
Given the potential issues with making exceptions, employers should consult with an experienced benefits attorney if they want to go down this path.
Conclusion
As stated earlier, the HIPAA regulations require that plans allow 30 days for the enrollment of a new dependent, but plans can choose to be more generous as a matter of plan design. Plan sponsors who have concerns about this issue may wish to modify their plan language to allow more than 30 days for employees to enroll their new dependents. However, any expansion of these rights should be discussed with the insurance carrier (if the plan is insured) or the TPA and stop loss carrier, if applicable (if the plan is self-funded). Finally, if an employee gives notice more than 30 days from the date of birth, it does not appear that premiums for retroactive coverage can be taken on a pre-tax basis under the cafeteria plan. Employers should consult with an experienced benefits attorney on this issue.
One way to avoid this quagmire is to clearly communicate plan requirements. While it is important to include information about these opportunities at open enrollment, it may also be helpful to send periodic reminders throughout the year about change in status opportunities. That can help keep them top of mind for employees so that they bring their election changes in on time.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.