Does gaining eligibility for Medicare or Medicaid create a qualifying event that allows an employee to add or drop employer coverage?

March 5, 2019

If the group allows pre-tax salary reductions, then the Section 125 cafeteria plan regulations limit an employee’s ability to make changes to their elections midyear. They may only do so upon the occurrence of a qualifying event. There are two types of qualifying events: HIPAA Special Enrollment Rights (SERs) and the permissible Section 125 qualifying events.

Becoming entitled to Medicare or Medicaid is a permissible Section 125 qualifying event that may allow the employee to make a midyear election change. Individuals can become eligible for Medicare by virtue of turning age 65 or as a result of being diagnosed with various disabilities. Individuals can become eligible for Medicaid based on their state’s income threshold. However, becoming “entitled” to Medicare or Medicaid is not just reaching eligibility; instead, Medicare and Medicaid entitlement occurs when the individual is actually enrolled in either of those programs.

Now, if an entitlement to Medicare or Medicaid occurs midyear, then the regulations also require that any such change request comply with a special consistency rule. In other words, the change must be consistent with and on account of the qualifying event. For example, upon entitlement to Medicare or Medicaid, an election change request that is considered consistent would be a reduction in coverage or termination from the group plan with an accompanying salary reduction. The idea is that an individual that gains coverage under Medicare or Medicaid wouldn’t need as much coverage under the employer group plan. So, an employee becoming entitled to Medicare or Medicaid would be allowed to reduce or drop coverage, but a request to enroll or add to existing coverage likely would not be allowed.

This permissible qualifying event would also allow employees to reduce or cancel coverage through the plan’s FSA. However, it is not clear whether this qualifying event would allow employees to drop stand-alone dental or vision coverage. On one hand, dental and vision could be considered a group health plan. On the other hand, there is an argument that a change to dental or vision coverage would not be consistent since Medicare and Medicaid don’t cover dental or vision.

Please keep in mind that the permissible Section 125 qualifying events are not mandatory. So the plan document must be designed to allow for this qualifying event in order for the employee to make a midyear election change on account of enrolling in Medicare or Medicaid.