The IRS issued two notices on Thursday, 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 moves 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.
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 Sept. 18.
Lookback period
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) or within the same applicable large employer member (ALE member) 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 period it applies to a particular position.
Under the proposed rule 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.
