The IRS does not consider the availability of the health exchanges/marketplaces a change in status event that would allow an employee to make a mid-year change under a Section 125 plan. However, the IRS has said that it will allow an employer with a non-calendar year plan to amend the plan to allow employees to make mid-year election changes to move from the plan to the marketplace, to allow employees who previously declined coverage to enroll in the plan as of Jan. 1, 2014, or both. (Because coverage purchased in the marketplace will be effective Jan. 1, 2014, calendar year plans should not have this issue.) There had been some question about whether this option was only available to large employers; the IRS has now clarified that employers of all sizes may amend their plan to allow for mid-year changes because of the new marketplace coverage.
The IRS has delayed the individual shared responsibility requirement for individuals who are eligible for coverage under an employer-provided non-calendar year group health plan to the start of the employer’s 2014 plan year, so obtaining coverage by Jan. 1, 2014, is not as urgent as previously thought. Employers may still wish to allow employees to enroll in their plan mid-year, and with the required plan amendment (most likely to both the Section 125 and group health plans) this will be allowed. An employer considering a mid-year enrollment option may want to get the approval of its insurer or reinsurer before offering this opportunity – insurers are not required to allow mid-year enrollment.
Download the complete UBA summary of this notice called “IRS Liberalizes the Health Flexible Spending Account ‘Use it or Lose It’ Rule” here.
Read the full text of IRS Notice 2013-71.
