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Special Enrollment Periods for Cafeteria Plans During the COVID-19 Pandemic

Posted on April 8th, 2020

Many insurance carriers are offering up a limited time special enrollment period due to the COVID-19 (Coronavirus) pandemic. Call it a midyear open enrollment period if you will. No qualifying event is necessary to enroll in the group health plan. Many insurance carriers (at the discretion of the employer) are allowing employees to join the group health plan if they waived coverage during the employer’s typical open enrollment period. This comes as good news for many employees.

Almost all employers that provide health plans to employees do so through a Cafeteria Plan (sometimes called a Section 125 Plan or Premium-only-Plan). Cafeteria Plans are regulated by the Internal Revenue Service (IRS) and allow employees to pay their portion of premiums with pre-tax dollars.

Cafeteria Plans also have a specific set of rules that must be followed. In particular, employees who join a group health plan outside of the typical open enrollment period can only pay their portion of premiums with pre-tax dollars if they experience a qualifying event as defined in the Internal Revenue Code.

Unfortunately, an insurance carrier offering a second-chance, midyear special enrollment period isn’t one of those qualifying events. While an insurance carrier may allow for these enrollments, the IRS Code does not currently recognize this as an opportunity to pay the insurance premiums with pre-tax dollars……but wait!!!

There is a Cafeteria Plan qualifying event when there is a significant improvement in benefits. Many insurance carriers, in addition to allowing these midyear special enrollment periods, are “beefing up” their health plan coverage and waiving all costs related to the diagnosis and treatment of the Coronavirus.

An argument can certainly be made that this is a significant improvement in benefits, and therefore a Cafeteria Plan qualifying event exists which would allow an employee to pay their portion of premium with pre-tax dollars when joining the health plan under one of these limited time, special enrollment periods. However, the Cafeteria Plan regulations don’t specifically define what a significant improvement of benefits actually means, so employers will have to use their own interpretation and decide how to proceed.

In addition, we may very well see the IRS issue guidance which allows for the pre-tax payment of insurance premiums during any one of these special enrollment periods created as a result of the Coronavirus. That would certainly make it a lot easier on employers and employees. 

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