Mid-Plan Year Health Benefit Options for Non-Participants

As part of employers’ normal open enrollment cycles – whether that be annually or for new hires – most employers warn employees that declining medical coverage will preclude the employee from enrolling in coverage until the next plan year, absent change-in-status or qualifying life event that is both permitted by IRS and recognized by the plan.

COVID-19 presents a situation that is hardly normal.

How can an employer address the concerns of employees (and their family members) who did not enroll in – or who were otherwise ineligible for – medical coverage? An employer might consider two options for allowing enrollment during the plan year: (1) provide an employer-created COVID-19 mid-plan year enrollment opportunity, or (2) offer additional coverage options outside of the medical plan.

Employer-created COVID-19 mid-plan year enrollment. Current IRS rules limit when an employee can use pre-tax dollars to enroll in – or add family members to – medical (and other types of) coverage outside of open enrollment. Unfortunately, COVID-19 does not neatly fit into any existing cafeteria plan event. To date, IRS has not provided enforcement relief or flexibility for allowing mid-plan year enrollment related to the COVID-19 pandemic. While an employer could allow employees to elect coverage during the plan year on a post-tax basis (and not violate these rules), this option might be administratively burdensome, ill received by employees and could present other compliance challenges (not discussed here). Many health insurance carriers are offering COVID-19 related special enrollment opportunities nevertheless for fully insured plans and providing employers with similar opt-in opportunities for their self-funded plans. Some employers view the new no-cost sharing COVID-19 testing coverage mandate as a significant improvement in coverage, justifying a mid-plan year enrollment under the cafeteria plan rules.

IRS could issue guidance on this issue in the near future. Until/unless that happens, an employer should consider the compliance risk of an operational failure that could jeopardize that pre-tax status of all cafeteria plan benefits for all participants.

In addition, employers should analyze the financial impact. Here are some items for employers to consider:

  • Increased costs. This enrollment opportunity presents the possibility of incurring more expense.
  • More dependents. It’s possible that this enrollment opportunity could garner more spouses and children who had been previously covered somewhere else. Your actuary can look at the demographics of your current waived population to evaluate the potential for the increase and the related cost impact.
  • Higher fees. Most medical and stop loss carriers have contract provisions that allow them to re-rate a group if enrollment changes by more than 10-15%. This enrollment opportunity could trigger an increase in fees.
  • No stop-loss coverage. If a stop-loss provider will not cover members who enroll during this enrollment opportunity, the employer might be left holding all the risk for members who join the plan mid-year, including but not limited to those with pre-existing conditions. Employers need to make sure they pose this important question to their stop-loss carrier. Mercer has already heard from one major stop-loss provider that they will not cover members who enroll during this enrollment opportunity.

Offer additional coverage. This typically involves extending a specific medical benefit to employees who previously declined coverage and those who were/are ineligible (e.g., part-time, seasonal). For example, an employer might extend stand-alone telemedicine coverage to these groups. It should be noted, however, that stand-alone telemedicine programs create potential legal issues under the Affordable Care Act, ERISA and other laws like COBRA and HIPAA. Mercer advocated for relief on this issue in a letter to Congressional leaders in mid-March, but so far, no action has been taken.

While this approach presents some financial concerns as well, they are more limited in scope than the broader considerations mentioned above. Contracting issues may be a larger factor than the financial burden of the proposed telemedicine offering in some cases.

In the absence of additional guidance, each of these two options falls in the “look before you leap” category. Before proceeding, carefully consider the implications and the potential risks – both from a compliance and financial perspective – with your trusted advisors.

Rich Glass
by Rich Glass

Principal, Health, Mercer

Mason Shea
by Mason Shea

Principal, Actuary, Mercer Health and Benefits

Daniel Davey
by Daniel Davey

Principal, Total Health Management

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