May 13, 2023
What is a Qualifying Life Event?
May 2023
Background
We often face the question of whether an individual’s situation is a “qualifying life event” that would permit them to make a change to their coverage mid-year. To answer that question, it is important to recognize two things:
- The term “qualifying life event” is not a regulatory term – there is no statutory definition for this term. It is a generic umbrella term used generally in the industry, usually to refer to either an event that triggers a HIPAA special enrollment period or an event for which §125 permits a midyear election change.
- The distinction between an event that triggers a HIPAA special enrollment period and an event for which §125 permits a midyear election change is critical in answering that original question of what changes an individual is permitted to make due to the event. Making that distinction will be the focus of this article.
HIPAA Special Enrollment Events vs. §125 Events
While a single event can both trigger a HIPAA special enrollment and permit an election change under § 125, it is very helpful to separate out these two items when faced with the question of whether an event is a “qualifying life event” because each has different implications.
HIPAA Special Enrollment Events
Whether an event has triggered a HIPAA special enrollment period will answer the question of whether an individual must be allowed to enroll in a group health plan outside of open enrollment. Group health plans (or more accurately, carriers and stop-loss vendors) will generally not permit enrollment in the plan outside of open enrollment, unless there is a HIPAA special enrollment period. When an individual has an event that has triggered a HIPAA special enrollment period, group health plans are legally required to allow that individual to enroll in their plan (assuming that the individual is otherwise eligible for the plan) outside of open enrollment.
The question of whether a HIPAA special enrollment has been triggered will only matter if an individual wants to enroll in a group health plan outside of open enrollment. If an individual is already enrolled in coverage and wants to drop or decrease their coverage, the §125 election change rules will be the relevant rule set (rather than HIPAA special enrollments).
HIPAA special enrollments apply to group health plans, but not excepted benefits (including dental-only or vision-only coverage and health FSAs). Therefore, it is generally only medical plans that will be required to allow a midyear enrollment due to a HIPAA special enrollment period. HIPAA special enrollment periods can be triggered by the following events: a loss of other coverage (generally due to a loss of eligibility for that other coverage); an acquisition of a dependent through marriage, birth, adoption, or placement for adoption; or a gain in eligibility for a state premium assistance subsidy.
§125 Election Change Events
Employee pre-tax elections under §125 (Cafeteria) plans are generally irrevocable for the plan year. However, §125 contains a list of events for which an election change will be permitted mid-year. Whether an event is one that would permit an election change under §125 will answer the question of whether an individual may make a change (whether that is an increase or a decrease) mid-year to the amount that they have elected to spend on coverage on a pre-tax basis. In other words, if the coverage in question is being provided on a post-tax basis, then the §125 rules simply will not apply to any changes in that case.
The question of whether a midyear election change is permissible under §125 will only matter if an individual wants to make a change in the amount that they spend or contribute toward qualified benefits on a tax-favored basis. If the question is whether an individual should be allowed to enroll midyear in a group health plan, or if an individual is paying or will pay for coverage on a post-tax basis, then §125 is not the relevant rule set.
When an individual has an event that would permit an election change under §125, this means that it would be compliant for the employee to be allowed to increase or decrease pre-tax elections for the remainder of the plan year. Further, in order to be compliant, the election change must follow any applicable consistency rule; most often, that will require that the election change must be “on account of and corresponding to” to the event. However, there are other special consistency rules that will apply in certain circumstances.
Note that, unlike HIPAA special enrollment periods, a plan is not required to allow a midyear election change when such an event occurs. How a particular plan handles and implements §125 election changes (including which events the plan will allow an election change for) should be spelled out in their §125 (or Cafeteria) plan documentation. A common approach is for a plan to simply allow all election changes as permitted by §125; however, it is possible that a plan does not allow for any election changes (even if permitted by §125).
Examples
The concept of a qualifying life event has conflated these two separate concepts – a HIPAA special enrollment and a midyear election change under §125. It can be difficult to separate these out, so we have provided an example of each below to help illustrate this distinction.
Example 1:
Employee Ed is enrolled in his employer’s group health plan. Ed has a 20-year-old daughter Dot who was enrolled in her own employer’s group health plan. However, Dot was terminated from her employment and consequently lost coverage through her employer’s plan. Can Ed add Dot to his employer’s group health plan before the next open enrollment?
Answer: Yes, assuming that Dot is otherwise eligible for Ed’s group health plan. Dot’s loss of her employer’s coverage due to a loss of her eligibility for that coverage would trigger a HIPAA special enrollment right. This means that Ed’s employer plan is required to allow Dot to enroll in the plan outside of open enrollment and §125 would permit a corresponding midyear election change to increase employee pre-tax contributions.
Example 2:
Employee Ed is enrolled in his employer’s group health plan. He turned 65 and has enrolled in Medicare and would like to drop his employer’s coverage as a result. Can Ed drop his employer’s group health plan coverage before the next open enrollment?
Answer: Yes. Medicare entitlement is an event for which §125 permits a midyear election change and dropping the coverage would be a consistent election change with Ed procuring Medicare coverage.
While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice or services. Readers should always seek professional advice before entering into any commitments.
