If an employee experiences a qualifying life event, do they have the right to switch benefit plan options (for example from PPO to HDHP)?

In short, it depends on what the qualifying life event is. As a reminder, when an employer offers pre-tax coverage through a Section 125 cafeteria plan, employee elections are generally irrevocable and cannot be changed midyear without a qualifying life event. There are two types of qualifying life events: HIPAA Special Enrollment Rights (SER) and optional, or permissible, Section 125 events.

The HIPAA SER events are:

• Birth
• Adoption
• Marriage
• Loss of eligibility for other group coverage
• Loss of Medicaid or CHIP
• Gain of eligibility for Medicaid or CHIP premium assistance program

Employees currently enrolled in the group medical plan who experience a HIPAA SER have the right to switch benefit plan options. For example, if an employee is enrolled in HDHP single coverage and gets married, they have the right to add the spouse and switch to a different medical plan option (such as to a PPO plan). This is an entitlement under HIPAA. Neither the employer nor the insurer can deny the employee the right to switch plans under these circumstances. Please note that the HIPAA SER rules don’t apply to stand-alone dental or vision plans, which are generally excepted from HIPAA portability governance.

The second type of qualifying events are the optional events under Section 125, which include:

• Change in status (employment, marital status, number of dependents, residence)
• Change in cost (significant and insignificant)
• Significant coverage curtailment
• Addition or significant improvement of benefits package option
• Change in coverage under another employer plan
• Loss of coverage sponsored by governmental or educational institution
• Certain judgments, orders or decrees
• Medicare or Medicaid entitlement
• FMLA leaves of absence
• Reduction of hours without loss of eligibility
• Exchange enrollment

These events are optional for both an employer and an insurer (or TPA/stop-loss carrier). If an employer intends to permit midyear election changes based on these events, their written Section 125 plan document would need to provide for such and the insurer’s policy (for a fully insured plan) or the TPA and stop-loss agreements (for a self-insured plan) would need to be in agreement. Employers should confirm with the insurer, TPA, and/or stop-loss carrier prior to allowing an employee to change plan options for a permissible event. Additionally, the action that the employee wishes to take must be consistent with the event that occurred. This consistency rule may limit the situations when an employee can change plan options depending on the facts and circumstances of the specific event.

Where there’s overlap between the HIPAA SER and optional Section 125 rules (for example, between the HIPAA SER event of marriage and the Section 125 event of change in marital status), remember that the HIPAA SER events along with the right to switch medical plan options are an entitlement to an eligible employee and cannot be denied by employer or insurer practice.

Lastly, remember that employers must operate the plan in accordance with the Section 125 rules and their written Section 125 Plan Document. Allowing employee election changes outside of those guidelines would put the employer at risk of disqualification of the plan’s tax status. On the other hand, denying an employee a HIPAA SER could result in DOL enforcement, an IRS excise tax penalty, or legal action against the plan. Employers should carefully review their plan documents and ensure their internal procedures align. Employers should also educate employees on the impact of HSA contribution limits in the event the change creates a change in eligibility for HSA contributions (for example, if an employee changes from an HDHP to a PPO plan).