Comments Concerning Cafeteria Plan Regulations
Under Internal Revenue Code Section 125 III. Comments B. Medicare, Medicaid and other Government Programs - Explanation of New Rule
Under the Final 2000 Regulations at Treas. Reg. §1.125-4(e), if an employee, spouse or dependent becomes eligible for coverage under Medicare or Medicaid, the employee is entitled to make a prospective election during a period of coverage to cancel or reduce coverage under an accident or health plan for such individual. Similarly, an individual’s loss of eligibility for Medicare or Medicaid (other than coverage consisting solely of the distribution of pediatric vaccines) qualifies as an event permitting an employee to make a prospective election during a period of coverage to commence or increase coverage under an accident or health plan for such individual. Id. The Final 2000 Regulations, however, do not address prospective election changes to reflect an individual’s eligibility or ineligibility for accident or health coverage under other government programs that pay for or subsidize health coverage. The Service specifically requested comments on whether eligibility or ineligibility for other government programs should be added as a permitted election change under a cafeteria plan. The Service also requested comments on any special administrative difficulties employers might have in identifying such an event and, if so, the types of government programs that should be taken into account. The preambles referenced the State Children’s Health Insurance Program (“CHIP”), as an example of such a government program. CHIP was established by Congress in 1997 as a federal program designed to enable states to provide health insurance to the children of working parents with incomes too high to qualify for Medicaid but too low to afford private coverage through separate state programs, Medicaid expansions or a combination of both. 21 U.S.C. §4901. - Concerns
There are strong policy considerations for adding a dependent’s loss or gain of eligibility for CHIP as events permitting an employee to make a prospective change to his or her election for group health coverage during a period of coverage. The states and the federal government have an interest in shifting children and families who have access to private employer-sponsored group health plans off of public assistance and into employer plans and ensuring that those families who do not have access to private health insurance coverage receive the public assistance that they need. Permitting an employee to make a prospective election based upon his or her dependent’s eligibility for health coverage under a private employer’s health plan would further the objective of moving those families who have access to employer-sponsored health coverage off of public assistance, thereby lessening the burden on public programs and enabling them to expand access for individuals with greater need. While eligibility requirements for participation in CHIP vary from state to state, generally children who are covered under a group health plan or other health insurance, as defined by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), are ineligible for assistance under CHIP. There may be, however, situations in which a child who is covered by a group health plan might be treated as uninsured. For example, an employee elects family coverage only under his employer’s dental plan (which is $400 per year) because the cost of medical insurance offered by the employer for family coverage (which is $5000 per year) is too expensive for the employee. The employee elects to participate in the employer’s Health FSA to pay for vision benefits for his family, in particular for a special needs child. During the year, the employee discovers that his child is eligible for health coverage under CHIP and that the CHIP coverage also provides vision benefits. In this case, the employee should be permitted to change his election under the employer’s Health FSA during the period of coverage so that he is not paying for coverage that his child receives under CHIP. - Recommendation
It is recommended that when finalized, the Regulations be expanded to permit an employee to make a prospective election upon a dependent becoming eligible or ineligible for CHIP.
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