During our weekly Town Hall meetings, we are using a word cloud app to not only stay connected, but to gain anonymous, no-pressure, and really great real-time feedback. During last week’s townhall we proposed the following question: “What do you love about working at ABD?”   The three most mentioned words were: Flexible Fun Challenging […]

4.27.20 – Weekly Update from Brian Hetherington

The IRS has released IRS Notice 2022-59 providing the adjusted $3.00 Patient-Centered Outcomes Research Institute (PCORI) fee per covered individual for health plan years ending on or after October 1, 2022 and before October 1, 2023, which includes 2022 calendar plan years. The fee has increased $0.21 per covered individual from last year (from $2.79). 

The annual PCORI fee must be reported and paid to the IRS by July 31, 2023 via the second quarter Form 720. 

The fee is imposed on health insurance issuers and self-insured health plan sponsors in order to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute operates under three overarching goals: 

Substantially increase the quantity, quality and timeliness of useful and trustworthy information available to support health decisions. 

Speed the implementation and use of patient-centered outcomes research evidence. 

Influence clinical and healthcare research funded by others to be more patient centered. 

The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics, including projects targeting certain populations of interest such as: racial and ethnic minorities, low socioeconomic status, women, older adults and individuals with multiple chronic conditions. The PCORI website lists current and completed research projects as well as outcomes. 

Fully Insured Medical Plans: Health Insurers are responsible for paying the fee on fully insured health policies. This fee is built into the insurance premium, so there is no action required by employers. 

Self-Insured Medical Plans: The plan sponsor (the employer) is responsible for paying the PCORI fee for self-insured health plans. Self-insured plans include “level funded” plans. 

For more details: Newfront Office Hours Webinar—Compliance Considerations for Self-Insured Plans 

Fully Insured Medical Plan with an HRA: The insurance carrier will pay the PCORI fee for the insured medical plan, and the employer will pay the PCORI fee based on employees enrolled in the HRA. This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health, and other specific medical expenses. 

Self-Insured Medical Plan with an HRA: As long as the self-insured (including level funded) medical plan and HRA have the same plan year, the employer will pay the PCORI fee only for the self-insured medical plan (not the HRA). This would apply to those employees who are enrolled in the self-insured medical plan and also enrolled in a specialty HRA (such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health and other specific medical expenses). 

Action Item: The employer must file the Form 720 and pay the fee for a self-insured or level funded medical plan or HRA. 

To Which Plans Does the PCORI Fee Apply? 

The PCORI fee generally applies only to major medical plans and health reimbursement arrangements (HRAs). (See below for an exception that applies to many HRAs.) 

The PCORI fee does not apply to dental and vision coverage that are excepted benefits (whether through a stand-alone insurance policy or meeting the “not integral” test for self-insured coverage). Virtually all dental and vision plans are excepted benefits. For full details, see our post: ACA and HIPAA Excepted Benefits. 

The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan). 

For a quick reference guide, the IRS has published a table which summarizes the applicability of the fee to common types of health and welfare benefits. 

Yes, an HRA is a self-insured health plan. This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health, and other specific medical expenses. 

For more details: Newfront Fringe Benefits for Employers Guide 

However, the PCORI rules provide an exception to the fee requirement for an HRA where it is offered along with a self-insured major medical plan that has the same plan year as the HRA. This avoids the need to pay the PCORI fee for both the HRA and the self-insured major medical plan (i.e., each person covered by both plans is counted only once for purposes of determining the PCORI fee). 

There is no exception from the PCORI fee for an HRA offered along with fully insured major medical coverage. While the insurance carrier is responsible for paying the PCORI fee for the fully insured medical plan, the employer is responsible for paying the PCORI fee on the HRA. The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both the major medical and the HRA. In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not dependents). 

Employers offering a specialty HRA alongside both a fully insured medical plan and a self-insured (including level funded) medical plan will need to calculate the cost and pay the PCORI fee for the HRA only for those employees who are not enrolled in the self-insured medical plan. For employees enrolled in the self-insured (including level funded) medical plan option and the HRA, the PCORI fee will be paid based only on the headcount in the self-insured medical plan. 

Action Item: The PCORI fee is required for an HRA unless it is paired with a self-insured major medical plan that has the same plan year as the HRA. Where the PCORI fee is required, the employer is responsible for filing the second quarter Form 720 and paying the PCORI fee for an HRA solely for the covered employees (not dependents). 

Plan Sponsors of self-insured health plans (other than an HRA) calculate the fee based on the average number of total lives covered by the plan (both employees and dependents). Plan sponsors of an HRA (including specialty HRAs) alongside a fully insured plan will calculate the fee based only on the number of employees enrolled in the HRA. 

Plan Sponsors can use one of three alternative methods which are summarized by the IRS in its PCORI fee homepage and PCORI fee FAQs: 

How Much Do I Need to Pay on the July 2023 Form 720? 

The PCORI fee is due July 31, 2023 of the calendar year following the plan year end date as follows: 

Plan Years Ending January 2022 – September 2022: $2.79 per covered life (including spouses/dependents) 

Plan Years Ending October 2022– December 2022: $3.00 per covered life (including spouses/dependents) 

For calendar plan years, the applicable rate for the 2022 plan year filed July 2023 will be $3.00 per covered life. 

The IRS has published a table of the applicable filing deadline and rate for each plan year ending date. 

Employers filing for a self-insured medical plan should keep in mind that the plan year is the ERISA plan year reflected in the plan document, SPD, and Form 5500 (if applicable). The PCORI fee also applies to short plan years, defined as any plan year less than 12 months. 

Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2022. Employer must file the first Form 720 to pay the PCORI fee in July 2023 based on the $3.00 PCORI rate. 

Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2023. Employer will file the first Form 720 to pay the PCORI fee July 2024. 

Employer with a July 1 plan year first changed to a self-insured medical plan (including level funded) effective July 1, 2022. Employer will file the first Form 720 to pay the PCORI fee of $3.00 per covered life July 2024. 

Employer with a self-insured medical plan has short plan year from July 1, 2022 through December 31, 2022 to transition to a calendar plan year as of 2023. Employer must file the Form 720 in July 2023 to pay the PCORI fee for both the full plan year ending June 2022 ($2.79 per covered life) and the short plan year ending December 2022 ($3.00 per covered life). The PCORI fee amount is prorated for the short plan year, as detailed in the IRS PCORI Fee FAQ. 

The PCORI fee is always filed on the second quarter IRS Form 720, regardless of the employer’s plan year. The second quarter Form 720 is due by July 31, 2023. Form 720 is used to pay the Quarterly Federal Excise Tax. Employers may want to coordinate with their accounting/tax departments if the company files any other excise taxes. Much of the form is irrelevant to the PCORI filing. 

Instructions for Completing the PCORI-Related Portions of IRS Form 720 

The employer will complete their name and address and employer identification number at the top of the form. 

Quarter ending will be June 30, and the year in which they are filing. 

Final return will be checked if the employer is going out of business, or no longer has a self-insured medical plan or HRA. 

Address change will be checked if the employer has changed their address since the last filing. 

Skip to Part II, (if no other taxes are being paid on this form) line 133 – Applicable self-insured health plans and choose the plan year. ending. Line (c) is for plan years ending before October 1 (non-calendar year plans) and line (d) is for plan years ending on or after October 1 (generally calendar year plans). 

The number of lives will be entered on either line (c) or (d) using one of the methods outlined above. An employer may enter the number of lives on both lines if they are filing for a full 12-month plan year and a short plan year. 

The number of lives in lines (c) or (d) is multiplied by the rate in column b and the result is entered in column (c) Fee. 

The total of lines (c) and (d) in the Fee column is brought over to the tax column. 

The same total is brought down to line 2 Total. 

Line 3: The same total from Line 2 is brought forward to this line.

Line 10: The amount from line 3 is brought down to line 10.

The form needs to be signed and dated and returned with payment. 

Employers paying via check would complete the payment voucher 720-V at the end of the form with their EIN, amount paid, business name and address. The tax period is second Quarter. Consult the IRS Instructions for Form 720 for additional direction on completing the form (see page 9). 

Another July 31 Deadline: Form 5500 Filing 

One other deadline looming for calendar year health and welfare plans with 100 or more covered employees at the beginning of the plan year is the Form 5500 filing. The Form 5500 filing is due to the DOL by the end of the 7th month after the end of the health plan year, normally July 31st. 

Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of this deadline (to October 15, 2023 for calendar plan years). 

For more details: Newfront ERISA for Employers Guide 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law). 

Newfront breaks down all you need to know about the recently-released IRS notice providing the adjusted PCORI fee per covered individual for health plan years ending on or after Oct. 1, 2022 and before Oct. 1, 2023.

Increased PCORI Fee Due July 31 via IRS Form 720

The IRS has issued its annual inflation adjustment to the HSA contribution limits for calendar year 2024.  With inflation still at high levels, we will have a second consecutive year of unusually large increases to the HSA contribution limits.

The 2024 HSA contribution limits are as follows:

Individual Coverage: $4,150 ($300 increase)

2024 Inflation Adjusted Amounts for HSAs and HDHPs

The IRS issues annual updates announcing HSA contribution limit increases.  The cost-of-living adjustments are based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). 

The full guidance for the 2024 HSA limit increases is available here:

Although inflation is trending downward now, it was still much higher than normal last year (7%-8% generally) and responsible for a second consecutive unusually large HSA contribution limit increase.  The result is a $300 and $550 increase to the 2024 individual and family coverage HSA contribution limits, respectively.

The 2024 calendar year HSA contribution limits are as follows:

The 2024 HSA contribution limit for individual coverage increases by $300 to $4,150.

The 2024 HSA contribution limit for family coverage (employee plus at least one other covered individual) increases by $550 to $8,300.

Note: The age 55+ catch-up contribution limit of $1,000 is fixed by law and does not adjust for inflation.

The annual IRS update also includes the 2024 calendar year minimum deductible and out-of-pocket maximums allowed for a plan to qualify as a high deductible health plan (HDHP)—the required coverage for an individual to be eligible to make or receive HSA contributions.  

The 2024 HDHP inflation adjusted amounts are as follows:

The 2024 minimum deductible for individual coverage increases by $100 to $1,600.

The 2024 minimum deductible for family coverage increases by $200 to $3,200.

The 2024 maximum out-of-pocket limit for individual coverage increases by $550 to $8,050.

The 2024 maximum out-of-pocket limit for family coverage will increase by $1,100 to $16,100.

Note: In family HDHP coverage, any embedded individual deductible cannot be lower than the minimum family coverage deductible ($3,200 in 2024).

Table of 2024 Inflation Adjusted HSA Amounts 

HSAs have experienced a whirlwind of enhancements in recent years.  Although none of the changes by themselves are revolutionary, the modifications are significant in the aggregate.  Taken together, these changes have noticeably improved HDHPs and HSAs by increasing reimbursable expenses and eliminating unnecessary barriers to eligibility:

First-Dollar Telehealth Relief (extension effective PYs beginning after 12/31/22 and before 1/1/25)

CAA 2023 extended for a second time CARES Act and CAA 2022 relief to provide that HDHPs can provide first-dollar telehealth and other remote care services for the 2023 and 2024 plan years.

Full details: CAA 2023 Includes Two-Year Extension of HSA Telehealth Relief

No Surprises Act (effective for plan years beginning on or after January 1, 2022)

HSA eligibility and HDHP status is not affected by surprise billing benefits made under the CAA’s No Surprises Act provisions (or similar state law protections).

Full details: CAA Surprise Billing Rules Preserve HSA Eligibility

Personal Protective Equipment (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse PPE such as masks, hand sanitizer, and sanitizing wipes for the primary purpose of preventing the spread of Covid.

Full details: PPE Now Qualifies as FSA/HRA/HSA Eligible Medical Expense

Menstrual Care Products (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse menstrual care products—including tampons, pads, liners, cups, sponges, or other similar products.

Full details: How the CARES Act Affects Employee Benefits

Over-the-Counter Medicines and Drugs (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse over-the-counter medicines and drugs without the need for a prescription.

Free Covid Testing (effective March 2020)

Plans will not fail to maintain HDHP status if they provide first-dollar coverage for medical care services and items purchased related to testing for and treatment of Covid.

Full details: IRS and DOL Issue Covid-19 Guidance Regarding HSA Eligibility

Expansion of Preventive Care Services (effective July 2019)

Expansion of HDHP first-dollar coverage availability to include medical services and items to prevent exacerbation of a chronic condition.

Full details: IRS Expands Definition of Preventive Care for HDHPs

For more details on everything HDHP/HSA, see our Newfront Go All the Way With HSA Guide.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

The IRS has issued its annual inflation adjustment to the HSA contribution limits for calendar year 2024, and Newfront covers what you need to know about the second consecutive year of unusually large increases.

Significant HSA Contribution Limit Increase for 2024

There is no doubt that the coronavirus pandemic has permanently impacted our global community, especially in the way that we work and view our jobs in relation to our daily lives. Changes to how we interact with our healthcare providers, and of course how we interact with colleagues, have evolved in several ways. For many organizations, challenges brought about during the last few years have positioned mental health and wellbeing as non-negotiable. Questions shifted from, “Why does workplace wellbeing even matter?” to “How can we positively influence the wellbeing of our employees?” While these questions can seem daunting at first to address in a meaningful way, not doing so will be detrimental to your team members and their mental health.

At Newfront, we take a multidimensional approach to wellbeing that is rooted in health equity. This means that we understand mental health is the product of several factors, including social determinants of health, and employee needs should be considered through the context of their circumstances in and outside of the workplace. In a previous blog we shared the ripple effect of mental wellbeing, and today’s statistics show that nearly 1 in 4 individuals are dealing with a diagnosable mental illness each year. This illuminates a significant opportunity for employers who are committed to employee wellbeing to make a difference by starting with their work environment.

Last year, the U.S. Surgeon General released a comprehensive Workplace Mental Health and Wellbeing framework to support workers and help employers implement mental health programming within their organization. Perhaps you already have the report bookmarked but still need to determine how to bring it to life within your organization. The core essentials, based on five key human needs, provide a holistic framework that targets the areas of greatest concern to employees:

Protection from harm – rests upon the human need for safety and security. With the first essential element, protection includes policies to prevent physical injury or danger, such as an Injury and Illness Prevention Plan (IIPP). Considering psychological safety, protection includes regular communication of benefit programs that encourage employees to talk about and access mental health resources like self-care, coaching, or therapy services.

Connection and community – rests upon the human need for social support and belonging. The second element prioritizes connectivity and belonging through effective diversity, equity, and inclusion (DEI) programming such as an employee resource group (ERG) for mental health.

Work-life harmony – rests upon the human need for autonomy and flexibility. The third essential offers employees an increased sense of control over work routines through consistent and flexible scheduling. This type of autonomy allows employees to handle emergency or unexpected life situations without fear of penalty which reduces mental distress.

Mattering at work – rests upon the human need for dignity and meaning. The fourth essential suggests employers build purpose into the work being done and let employees know they are valued. At a foundational level, this means creating an equitable compensation plan to eliminate gender and racial wage gaps, known to contribute to mental stress, depression, and anxiety.

Opportunity for growth – rests upon the need for learning and accomplishment. The fifth and final essential prioritizes the value of skill-building and transparent advancement opportunities for those individuals looking to grow within the organization. Consider formalizing a learning and development program to give employees professional training opportunities that benefit all parties.

Actions in each of the framework’s essentials strengthen workplace culture and foster emotional wellbeing for all. Organizations can leverage the framework to create or enhance a strategic approach to culture change and employee emotional wellbeing. Looking at the essentials as a call to action—are there areas within your workplace that need to adjust to build a more supportive and inclusive culture where employees thrive? Perhaps leaders within your company can implement mental health breaks into the workday through walking meetings, 60-second resets at the beginning of a meeting, or even by exploring the benefits of alternative work weeks. Consider the bold steps you can take—what employees need but you have been hesitating to act on—that  will go beyond structural norms to promote mental health and boost employee wellbeing.

Newfront can support your strategic efforts with our dedicated resources that specialize in inclusive benefits, holistic wellbeing, and total rewards. Contact your Newfront Account Executive to learn more.

Organizations committed to employee wellbeing have a significant opportunity to make a difference by starting with their work environment.

Wellbeing Recommendations to Enhance Your Organizational Culture 

Question: What is the cafeteria plan tag-along rule, and how can employers offer it to facilitate mid-year employee and dependent enrollments?

Short Answer: The tag-along rule derives from the Section 125 permitted election change event rules to allow employees to enroll existing dependents mid-year upon experiencing a qualifying life event.  Employers can also rely upon the tag-along rule to enroll the employee where necessary to facilitate a dependent’s mid-year enrollment.

General Rule: Section 125 Cafeteria Plan Irrevocable Election

Employees’ elections to pay the employee-share of the premium for health and welfare plan coverage on a pre-tax basis or make pre-tax FSA contributions are governed by Section 125 of the Internal Revenue Code. The Section 125 cafeteria plan rules are very strict when it comes to the irrevocability of employees’ elections.

That general rule under Section 125 is that all elections (including an affirmative or default election not to participate) must be:

a) made prior to the start of the plan year, and

b) irrevocable for the plan year unless the employee experiences a Section 125 permitted election change event.

The permitted election change events are set forth in Treas. Reg. §1.125-4 (e.g., marriage, divorce, birth, adoption, change in employment status affecting eligibility).  Most cafeteria plans provide a window of 30 days for an employee to make a mid-year election change upon experiencing a permitted election change event.

Newfront Section 125 Cafeteria Plan Guide

Newfront Section 125 Permitted Election Change Event Chart

HIPAA Special Enrollment Events: Overview

HIPAA special enrollment events are a subset of the Section 125 permitted election change events that provide employees with additional mid-year enrollment rights.

The following events qualify as HIPAA special enrollment events:

Loss of eligibility for group health coverage or individual health insurance coverage;

Loss of Medicaid/CHIP eligibility or becoming eligible for a state premium assistance subsidy under Medicaid/CHIP; and

Acquisition of a new spouse or dependent by marriage, birth, adoption, or placement for adoption. 

For more details: HIPAA Special Enrollment Events

HIPAA Special Enrollment Events: Existing Dependents

The HIPAA special enrollment rules limit the mid-year enrollment rights to the employee, the spouse, and any newly acquired dependents (e.g., newborn child).  Any other dependents (e.g., siblings of the newborn child) are not entitled to special enrollment rights.

The exclusion of existing dependents from special enrollment rights, for example, prevents employees from having the right under HIPAA to add an existing child to the plan upon the birth of a new child.

The Tag-Along Rule: Cafeteria Plan Option for Existing Dependents

Beyond the required HIPAA special enrollment event rights, the Section 125 cafeteria plan permitted election change event rules allow employers to offer additional election change opportunities to employees.  These permitted election change event rules are optional, but most employers intend to offer employees the ability to change their elections mid-year to the maximum extent allowable.

The so-called “tag-along” rule is a Section 125 provision that permits mid-year enrollment in a manner that applies more broadly than the HIPAA special enrollment rules.  The tag-along rule is derived from the general “change in status” permitted election change event requirement that any mid-year election change be “on account of and corresponds with a change in status.”  This concept is typically referred to as the “consistency rule” rule for change in status events.

The tag-along rule primarily permits employees to enroll existing dependents in the plan where the dependent enrollment satisfies the consistency rule.  Although the tag-along rule is not explicitly referred to in the Section 125 regulations, examples in the rules and IRS commentary in the preamble to the regulations highlight the availability of the tag-along rule to accommodate mid-year enrollment of existing dependents. 

The Tag-Along Rule: Examples of Situations Where it May Apply

There are many potential permitted election change event situations where the tag-along rule can apply to permit enrollment of additional individuals.  The following is an overview of some of the more common examples.

Example #1: Enrolling Siblings Upon Birth of Child

Bruce and Talia have a child Damian who is covered as a dependent through Talia’s plan with her employer.

Bruce and Talia have a second child Thomas, and they would like to move the entire family to Bruce’s coverage.

If the employer and carrier (or stop-loss) permit, Bruce can rely on the tag-along rule to enroll Damian (who as an existing dependent does not have a HIPAA special enrollment right) in Bruce’s plan.

Example #2: Enrolling Employee to Permit Enrollment of Dependent Who Lost Coverage

Leto and Jessica have a child Paul, all of whom are enrolled in the medical coverage through Leto’s employer.

Leto and Paul have no vision impairments, so they decline vision coverage.

Jessica wears glasses and needs regular checkups, so she enrolls in employee-only vision coverage through her employer’s vision plan.

Jessica loses her job and her vision coverage.

If the employer and carrier permit (or stop-loss), Leto can rely on the tag-along rule to enroll himself (as needed to enroll a dependent) and Jessica in Leto’s vision plan.

Example #3: Changing Employee’s Coverage to Accommodate Dependent Who Changed Residence

Jerry and Elaine have a child Cosmo who is moving from New York to Los Angeles to attend college.

All three individuals are covered under a regional HMO through Jerry’s employer.

Cosmo’s new residence is outside the regional HMO service area, and therefore the move causes him to lose coverage.

If the employer and carrier (or stop-loss) permit, Jerry can rely on the tag-along rule to move both Cosmo (who experienced the event) and Jerry and Elaine (who have to change coverage to facilitate Cosmo’s new coverage) to a different plan option sponsored by the employer that provides coverage both in New York and Los Angeles.

Example #4: Enrolling Employee to Permit Enrollment of Dependent Moving to U.S.

Rhett is married to Scarlett, but Scarlett resides outside the United States. 

Rhett declines coverage through his employer because he is enrolled in Medicaid, and Scarlett is not eligible because she does not reside in the U.S.

Scarlett moves to the U.S. to reside with Rhett and needs health coverage.

If the employer and carrier (or stop-loss) permit, Rhett can rely on the tag-along rule to enroll both Scarlett (who experienced the event) and himself (as needed to enroll a dependent) in Rhett’s employer-sponsored health plan.

Important Caveat #1: Insurance Carrier or Stop-Loss Provider Approval Required

Insurance carriers and stop-loss providers are not required to accommodate tag-along enrollments.  Accordingly, employers processing a mid-year enrollment election change request based on the tag-along rule should first confirm that the insurance carrier (or stop-loss provider for a self-insured plan option) will accept the tag-along enrollment.

Important Caveat #2: Cafeteria Plan Terms

The Section 125 rules do not require the cafeteria plan to accommodate any mid-year changes to employees’ pre-tax elections.  Accordingly, as with all aspects of the Section 125 permitted election change events, cafeteria plans are not required to offer tag-along enrollments. 

Note: The HIPAA special enrollment rules do require the employer-sponsored major medical group health plan to accommodate certain mid-year enrollments. 

Employers should consult the cafeteria plan document terms when determining whether their cafeteria plan is designed to accommodate the tag-along rule.  If the plan terms do not directly address tag-along enrollment—as is frequently the case—the employer can use its discretionary authority to interpret those plan terms on a consistent basis to incorporate the tag-along rule.

The tag-along rule is a useful cafeteria plan option for employers to permit mid-year enrollment of additional individuals who do not have a HIPAA special enrollment right, including existing children who were not previously enrolled.  It is also a useful cafeteria plan option for employers to allow employee enrollment or coverage changes to accommodate a permitted election change event experienced by the employee’s dependent.

(i) Employer M provides health coverage for its employees pursuant to a plan that is subject to section 9801(f). Under the plan, employees may elect either employee-only coverage or family coverage. M also maintains a calendar year cafeteria plan under which qualified benefits, including health coverage, are funded through salary reduction. M's employee, A, is married to B and they have a child, C. In accordance with M's cafeteria plan, Employee A elects employee-only health coverage before the beginning of the calendar year. During the year, A and B adopt a child, D. Within 30 days thereafter, A wants to revoke A's election for employee-only health coverage and obtain family health coverage for A's spouse, C, and D as of the date of D's adoption. Employee A satisfies the conditions for special enrollment of an employee with a new dependent under section 9801(f)(2), so that A may enroll in family coverage under M's accident or health plan in order to provide coverage effective as of the date of D's adoption.

(ii) M's cafeteria plan may permit A to change A's salary reduction election to family coverage for salary not yet currently available. The increased salary reduction is permitted to reflect the cost of family coverage from the date of adoption. (A's adoption of D is also a change in status, and the election of family coverage is consistent with that change in status. Thus, under paragraph (c) of this section, M's cafeteria plan could permit A to elect family coverage prospectively in order to cover B, C, and D for the remaining portion of the period of coverage.)

(i) Employee E is married to F and they have one child, G. Employee E's employer, U, maintains a cafeteria plan under which employees may elect no coverage, employee-only coverage, or family coverage under a group health plan maintained by U, and may make a separate vision coverage election under the plan. Before the beginning of the calendar year, E elects family health coverage and no vision coverage under U's cafeteria plan. Employee F's employer, V, maintains a cafeteria plan under which employees may elect no coverage, employee-only coverage, or family coverage under a group health plan maintained by V, and may make a separate vision coverage election under the plan. Before the beginning of the calendar year, F elects no health coverage and employee-only vision coverage under V's plan. During the year, F terminates employment with V and loses vision coverage under V's plan. Employee E now wants to elect family vision coverage under U's group health plan.

(ii) F's termination of employment is a change in status under paragraph (c)(2)(iii) of this section, and the election change satisfies the consistency rule of paragraph (c)(3) of this section. Therefore, U's cafeteria plan may permit E to elect family vision coverage (covering E and G as well as F) under U's group health plan.

In accordance with comments, examples in the regulations clarify that if, in accordance with special enrollment rights provided by HIPAA , an employee, spouse, or new dependent is entitled to enroll in a group health plan, a cafeteria plan may permit the employee to elect to enroll pre-existing dependents in the underlying group health plan. Likewise, the examples clarify that if, in accordance with the change in status rules relating to a new spouse or dependent, an employee is entitled to elect family coverage under a group health plan, then other family members are permitted to become covered under the family coverage as a result of the election change. 

Newfront's Brian Gilmore explores the cafeteria plan tag-along rule, and how can employers offer it to facilitate mid-year employee and dependent enrollments.

The Section 125 Tag-Along Rule

Half of Americans say they are stressed by finances [1]. And more than three fourths of Americans have experienced health impacts due to stress [2]. It’s no secret that one of the leading causes of anxiety is personal finance. Money may not be the root of all evil, but it does cause its fair share of tension. May is Mental Health Awareness month, and we’re exploring how mental health and financial wellness are intertwined—and sharing some steps you can take to alleviate financial stressors.

It can be intimidating at times to think about or attempt to manage our finances. Sometimes it seems like the bills keep piling up with no end in sight. At other times, our bank account just seems to get smaller and smaller, and we aren’t sure of a way forward. The stats are telling:

73% of Americans in debt are stressed about money, and one in 20 are fearful they will be unable to pay their debt off, ever! [1]

76% of Americans experienced health impacts due to stress [2]

27% report being so stressed they cannot function most days [2]

Some fairly common “bad money habits” often lead to more stress, anxiety, and fear around money, such as:

Not opening bills and telling yourself you’ll deal with it later

Ignoring one’s bank account in order to avoid the anxiety it causes

Avoiding student loan payments and letting debt get out of hand

Racking up credit card debt (i.e., impulse buying to satisfy a void)

Avoiding investing for the future because of fear of market volatility

If you thought these were just your bad habits, think again. Almost everyone has fallen into one of these traps at some point. Almost all of us are dealing with some form of financial anxiety. 

With that said, let’s get to the good news.

The fact is that, with some intentionality, mindfulness, and education, you might find yourself more aware, in control, and less stressed about that next bill coming due.

One practical step to managing your finances with greater intentionality is to create a budget. If you create a budget and stick to it, you are more likely to sleep peacefully at night. How many of us walk away from a purchase we can’t afford and then end up patting ourselves on the back later because of how good it feels? If you don’t know where to start, consider utilizing free budgeting resources like mint.com or creating a spreadsheet and tracking all or your income and expenses. If you want to pay for something more technically robust, consider a platform like You Need A Budget, Quickbooks, or Quicken. Any one of these can help you increase awareness and guide you in future decision-making.

Next is mindfulness. Consider starting a gratitude practice and making decisions from a place of contentment. Mindfulness is a way to keep one’s focus on the present moment, and often includes practices like meditation and yoga. But you don’t have to become a yogi to be mindful. You only need to keep your attention on the present. By being aware of our thoughts and emotions, we can avoid being overcome by them and can even manage them more effectively. One important thing to be aware of is what we do have in life, not what we’re missing. It is easy to pile up negative thoughts particularly as relates to personal finances. But we shouldn’t forget that very often our basic needs are met, and we have a number of things to be grateful for. Take some time to consider what your values are and identify whether you already have what you’re seeking in life. You might find yourself in a completely different state of mental health, which could aid in your financial decision-making.

Lastly is education. Many of us did not learn about finances growing up (at least in the formal education system). So, we’re left to rely on ourselves, family and friends to put the pieces together. If you feel under informed when making financial decisions, you’re certainly not alone. And knowing that may be enough to ease some of the anxiety. To help, consider free resources like Nerdwallet, Investopedia, or Fidelity. Each has great tips on saving, investing, and how to budget. You could also check out my other blogs discussing financial wellness:

Behavioral Biases and Finance: How Our Attitude Toward Finances Can Impact Our Overall Financial Wellbeing

Financial Literacy Month: How to Control Your Money Instead of it Controlling You

Prep for a Recession: Get Back to Money Management Basics in Five Steps

Additionally, consider working with a professional like a CFP® to help guide your decision making. CFPs are fiduciaries who provide holistic advice on the full scope of your finances and provide cash flow analysis to help you identify areas of opportunity. You can go to letsmakeaplan.org to find a CFP in your local area. Understand that not all advisors have investment minimums, and you can work with an advisor of your preference.

As you can see, mental health and financial wellness are intimately related. Americans in general are stressed about their finances and this is having an adverse impact on overall wellness. But with practical steps like intentionality, mindfulness, and education, there is a path forward that can help us decrease stress and increase our mental well-being.

[1] Bankrate, More than half of Americans say money negatively impacts their mental health, up sharply from a year ago, May 2023: https://www.bankrate.com/personal-finance/financial-wellness-survey/ 

May is Mental Health Awareness month, and we’re exploring how mental health and financial wellness are intertwined—and sharing some steps you can take to alleviate financial stressors.

4.27.20 – Weekly Update from Brian Hetherington

Brian Hetherington

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