Insights

FAQ: Is a furlough considered a qualifying event that would allow an employee to drop their group health plan elections (including medical plan and health and dependent care FSA elections)?


Possibly. It would depend on the group health plan eligibility terms, and whether the employer allows midyear election changes per its section 125 plan document. Most employers allow midyear election changes as allowed under section 125.

On medical plan elections, if the furlough results in a loss of medical plan eligibility, then eligibility would automatically be lost and the employee should be offered COBRA (or state continuation). If eligibility is extended through the leave, though, and the employee intends to enroll in a state health insurance exchange, there are two potential qualifying events (reduction in hours and exchange enrollment) that allow the employee to drop coverage. Normally, the employee would need a special enrollment event to enroll in a state exchange plan, but some states are opening up their enrollment windows midyear for anyone in that state (even if they have not experienced a midyear event). So, if an employee intends to use one of those exchange enrollment windows, the employee could drop the employer’s medical plan.

Importantly, neither of those qualifying events requires actual enrollment — just intention. An employer can rely on the employee’s attestation of intention to enroll in an exchange plan. (Keep in mind, though, that many states are only allowing a special enrollment event for individuals without insurance; this could mean that employees with employer-sponsored coverage are not eligible for the special enrollment.)

On health FSAs, if the furlough results in loss of health FSA eligibility, then the employee can drop FSA coverage (and in some instances, health FSAs will have an automatic termination, so there's really no choice). So if the employer is furloughing or otherwise sending employees on a leave of absence, then the employee would likely lose eligibility for the FSA, and therefore could drop FSA coverage (or may lose it automatically). But if the employer chooses to continue eligibility through a furlough (including FSA eligibility), then there would be no qualifying event.

If the reason the employee is taking a leave is because the employee has COVID-19, then it's possible that the employee qualifies for FMLA. Also, the emergency FMLA expansion (part of the newly enacted Families First Coronavirus Response Act — FFCRA) might apply if the employee is unable to work or telework because they have to care for their son or daughter under 18 years of age whose school or day care has closed due to a public emergency. So if the leave is FMLA-protected (through either of those), then benefits (including health FSAs, but not including dependent care FSAs) should not be dropped by the employer; benefits should continue on the same terms as prior to the leave. However, if the employee wants to drop their coverage during unpaid FMLA leave, there is a qualifying event that would allow them to do so for all benefits.

With dependent care FSAs (DCAPs), when there is a change in the cost of a dependent care provider, the employee’s work location changes (so that a different daycare is more convenient), a participant changes dependent care providers or a daycare closes, then a plan may permit a midyear change in election. Such election change may include starting, stopping or modifying a DCAP election, depending on the employee’s situation. In the current COVID-19 environment, with day cares and other childcare options temporarily closing, a decrease in (or cancellation of) a DCAP election would likely be permitted. In addition, if and when employees can go back to work, and if and when the daycare reopens, participants should at that time be able to increase their DCAP elections accordingly.

Overall, employers should review their Section 125 written plan document to ensure that appropriate section 125 elections are allowed. Most plan documents allow employers to make changes as allowed by section 125, but it's worth reviewing to be sure.