From the IRS
The IRS issued two notices proposing to change the rules for when a taxpayer can revoke health care coverage in a cafeteria plan and enroll in a plan on the Health Insurance Marketplace exchanges, and how to measure the lookback period for determining who is a full-time employee when an employee changes positions within the same employer group. Both pieces of guidance are issued under the Patient Protection and Affordable Care Act, P.L. 111-148, as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152.
Cafeteria Plan Elections
In Notice 2014-55, the IRS announced proposed amendments to Regs. Sec. 1.125-4 to permit employees to revoke their election of employer-sponsored coverage under a cafeteria plan and purchase a qualified health plan through an exchange in two situations.
The first situation involves an employee whose hours of service are reduced below 30 hours so that he or she is no longer considered a full-time employee but whose employer's plan will still cover the employee. (This situation occurs because some employers continue to cover employees who are no longer full time to avoid the Sec. 4980H penalty.) The second situation involves an employee who is enrolled in an employer's group health plan who would like to cancel coverage under that health plan and purchase coverage through an exchange without a period of duplicate coverage or no coverage.
Regs. Sec. 1.125-4(b) permits a cafeteria plan to allow an employee to revoke an election under the group health plan during a period of coverage and to make a new election that corresponds with the special enrollment rights under Sec. 9801(f), which are rights to enroll in a group health plan due to loss of other coverage or certain family events, but do not include the ability to enroll in a qualified health plan through an exchange. The notice allows, but does not require, employers to amend their cafeteria plans to permit these employees to revoke their election for coverage under the employers' health plans in order to obtain coverage through an exchange.
The IRS says it intends to amend Regs. Sec. 1.125-4(b) to reflect the guidance in Notice 2014-55, but in the meantime, taxpayers may rely on the notice, effective beginning Sept. 18, 2014.
Notice 2014-49 contains a proposed approach for applying the lookback measurement period used to determine if an employee is a full-time employee for purposes of the large-employer health coverage shared-responsibility penalty under Sec. 4980H, when the measurement period for a particular employee changes. The IRS explains that this might occur when an employee transfers within the same applicable large employer (ALE) from a position to which one measurement period applies to a position to which a different measurement period applies. It may also occur if the ALE member modifies the measurement method applicable to employees within a permissible category.
Under the proposed rule, in general for an employee who has been employed for a full measurement period at the time of the transfer (and will either be considered a full-time employee or non-full-time employee for the stability period in that measurement period), the employee retains his or her status through the end of the associated stability period. For an employee who is not in a stability period (or administrative period) at the time of transfer, the employee's status is determined using the measurement period that applies to the second position, but hours of service in the first position are included.
Until further guidance is issued (and at least through the end of calendar year 2016), employers can rely on Notice 2014-49. The IRS is inviting comments on the rules proposed in the notice, which should be submitted no later than Dec. 29, 2014.