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Additional Section 125 Midyear Changes Permitted

October 21, 2022

Last week the IRS issued Notice 2022-41 in connection with the revised definitions of affordability and minimum value. As a result of these revised definitions, more individuals – particularly, family members of an employee – are likely to become eligible for premium tax credits for coverage purchased through a Health Insurance Exchange. Notice 2022-41 permits employees to elect out of family coverage into self-only coverage prospectively, provided certain conditions are met.

New Permitted Election Changes

Section 125 plans may allow employees to prospectively revoke an election of family coverage under a group health plan provided the following conditions are satisfied:

  • One or more dependents are eligible to enroll in the Exchange due to either the Exchange’s annual open enrollment period or due to qualifying for a special enrollment period; and
  • The revocation corresponds to the intended enrollment of the dependent(s) in new coverage through the Exchange that is effective no later than the day immediately following the last day of the original revoked coverage. If the employee does not enroll in the Exchange, the employee must continue self-only coverage (or family coverage including one or more already-covered dependents) under the group health plan.

Next Steps

Employers wishing to allow the new midyear election changes may need to amend their plans, depending upon how their plan is currently written. If the plan currently states that all permissible changes will be allowed, then no amendment is necessary.

In general, Section 125 amendments must be adopted on or before the last day of the plan year in which the change is made. However, the IRS is allowing additional time for employers wishing to adopt this change relative to plans that begin in 2023. Amendments for plans that begin in 2023 may be adopted at any time on or before the last day of the plan year that begins in 2024.

Reach out to your Hylant representative for further information. Don’t have one? Contact us here.

The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.

Holly Wahl Senior Vice President, Employee Benefits Compliance Leader

Holly leads Hylant’s ongoing efforts to provide our clients with compliance consulting services on new developments as well as ongoing requirements affecting health and welfare plans. She possesses a deep understanding of federal and state regulations pertaining to employee benefit plans, as well as extensive experience in group benefit plan operation.

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