On October 11, 2022, the IRS released Notice 2022-41, expanding on the “change in status” rule under a Section 125 Cafeteria plan. Under the previous cafeteria plan rules, employees were not allowed to change their family coverage election mid-year in order for their family members to enroll in a Marketplace plan unless the employee also enrolled in coverage at the Marketplace (see IRS Notice 2014-55). With this expansion, employees can now revoke medical coverage for family members who enroll in a Marketplace plan while retaining their own coverage under the employer’s plan, provided specific conditions are satisfied.
A non-calendar year cafeteria plan may allow an employee to essentially revoke an election of family coverage under a group health plan that is not a health FSA and that provides minimum essential coverage provided the following conditions are satisfied:
- One or more related individuals are eligible for a special enrollment period to enroll in a QHP through an Exchange, or one or more already-covered related individuals seek to enroll in a QHP during the Exchange’s annual open enrollment period; and
- The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the related individual or related individuals in a QHP through an Exchange for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.
The guidance in this notice applies to elections effective on or after January 1, 2023. Taxpayers may rely on the guidance in this notice pending further guidance.
The final regulations are expected to extend eligibility for premium tax credits to some dependents who were previously ineligible for the credits. So, employees who previously elected family coverage under their employer’s health plan may want to change their elections mid-year to allow family members to enroll in Marketplace coverage and take advantage of the premium tax credits for newly eligible family members.
While the new guidance allows employers to expand mid-year election change options under their cafeteria plans, it does not require them to do so. Employers wishing to allow such changes under their cafeteria plans must amend their plan documents to reflect this change. Notice 2022-41 states:
To allow the new permitted election changes under this notice, an employer must amend a cafeteria plan to provide for these election changes. An employer must adopt the amendment on or before the last day of the plan year in which the elections are allowed, and the amendment may be effective retroactively to the first day of that plan year, provided that the cafeteria plan operates in accordance with the guidance under this notice and the employer informs participants of the amendment and provided further that an employer may amend a cafeteria plan to adopt the new permitted election changes for a plan year that begins in 2023 at any time on or before the last day of the plan year that begins in 2024. However, in no event may an employer amend a cafeteria plan to allow an election to revoke coverage on a retroactive basis.
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Resource: Larry Grudzien, Attorney at Law.