Q: “If an employee failed to participate in open enrollment, thereby losing insurance coverage, can the employee resign and be immediately rehired to enroll in the employer’s medical plan as a new hire?” – Theresa, Virginia
A: No, not without putting the plan at risk for failing to comply with Section 125 of the IRS regulations covering cafeteria plans, if your health plan is set up as a Section 125 plan and permits employees to pay for their insurance using pre-tax dollars.
In general, health insurers who offer employer sponsored pre-tax health insurance are obligated to offer that insurance to all of the employer’s employees and to charge them the same rate for the degree of coverage desired—for example, single employee coverage, family coverage. Those rates are set in advance of the plan year. The regulations define when employees may or may not enroll in terms of a “qualifying event”—generally, there is an open enrollment period each year, and employees may enroll following a qualifying event, such as being hired, getting married, the birth of a child, change in spouse’s eligibility for employer-offered health insurance, etc. Employees typically may not enroll whenever they so choose, because of the concern that many will sign up for insurance only when a health problem arises. Although there is no specific regulation addressing your question, the regulations suggest that an employee who resigns his employment and is rehired within 30 days has not experienced a “qualifying event” and will retains his same status with respect to the health plan.
The IRS regulations provide an example that is illustrative:
Example 8: (i) Before the beginning of the year, Employee H elects to participate in a cafeteria plan maintained by H’s employer, W. However, in order to change the election during the year so as to cancel coverage, and by prior understanding with W, H terminates employment and resumes employment one week later.
(ii) In this Example 8, under the facts and circumstances, a principal purpose of the termination of employment was to alter the election, and reinstatement of employment was understood at the time of termination. Accordingly, H does not have a change in status under paragraph (c)(2)(iii) of this section.
(iii) However, H’s termination of employment would constitute a change in status, permitting a cancellation of coverage during the period of unemployment, if H’s original cafeteria plan election for the period of coverage was reinstated upon resumption of employment (for example, if W’s cafeteria plan contains a provision requiring an employee who resumes employment within 30 days, without any other intervening event that would permit a change in election, to return to the election in effect prior to termination of employment).
(iv) If, instead, H terminates employment and cancels coverage during a period of unemployment, and then returns to work more than 30 days following termination of employment, the cafeteria plan may permit H the option of returning to the election in effect prior to termination of employment or making a new election under the plan. Alternatively, the cafeteria plan may prohibit H from returning to the plan during that plan year.
Of course, my comments here are based upon some assumptions about the nature of the health insurance offered by your employer. It is important, always, to read the actual language of the plan in question. You may also want to consult with knowledgeable benefits counsel regarding your plan and your options with respect to the individual employee.
Even if you conclude that the employee cannot manufacture a change in status by resigning and being immediately rehired, the employee still has options. Post-tax health insurance plans (perhaps including a supplemental insurance plan offered by your employer) can be purchased at any time of year. And, of course, if the employee has a qualifying change of status (birth of a child, for example) during your qualified plan’s year, then he may elect to enroll himself and his family at that time.
