Frequently Asked Questions

January 18, 2023

FAQ: What should an employer do if they become aware that an employee made a mistake after open enrollment ends?

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Employers should consider all the facts and circumstances surrounding the mistake before taking any action to correct it.

Under section 125, the employee's election must occur prior to the coverage effective date, and the related deduction should come out of a future paycheck. Section 125 also states that employees should not have the ability to change their elections after the effective date of coverage (i.e., during the plan year) unless the employee experiences a qualifying event. Under ERISA, the employer should operate/administer the plan according to the plan terms, according to relevant laws and in the best interest of plan participants/beneficiaries. So, for all those reasons, the employer should not allow election changes for any period following the effective date of coverage. Rather, allowing election changes after the effective date could be viewed as a violation of section 125 and ERISA. Accordingly, the practice of allowing those changes post effective date should generally be discouraged.

However, employers can allow election changes AFTER open enrollment and BEFORE the coverage effective date. That's a good idea and practice to keep in place to catch errors before the coverage period starts. Also, it's permissible to correct true errors and mistakes that are discovered after the coverage period begins. But it must be a true mistake, not an employee simply changing their mind.

There is a lack of formal guidance when it comes to correcting mistakes, but the general notion from the IRS is that if there's clear evidence of some type of mistake, then the employer can take steps to place everyone back in the position they would've been absent the mistake. Whether the clear and convincing standard is satisfied depends on the nature of the mistake, including when it occurred and when it was discovered. Generally, employer clerical or data entry type mistakes would qualify. Additionally, situations in which the employee could not have benefitted from the election are clear and convincing. For example, if an employee made a dependent care deferral election at enrollment but did not have a dependent, this seems rather clear and convincing evidence of a mistake.

Essentially, it is a facts and circumstances analysis. Factors to consider include:

  • The employee's past elections and benefit usage.
  • Assessment of the employee's truthfulness.
  • Time that has elapsed since the first payroll date after the election was in force.
  • Changed circumstances experienced by the employee that might be evidence of reconsideration rather than a mistake.
  • Other extrinsic evidence of a mistake.

These factors should be applied on a consistent and nondiscriminatory basis and documented.

In the end, it would be the employer’s decision as a plan sponsor to determine whether there is clear and convincing evidence of a mistake. However, the employer should consider the situation carefully before making exceptions because the employer has an obligation to follow the terms of the plan document. Additionally, the employer has an obligation to treat all eligible employees in a like manner. Finally, making an exception may also create an undesirable precedent.

If the employer chooses to recognize the mistake, the insurer or stop loss carrier would need to be agreeable. From a payroll perspective, again, there is no formal guidance, but the general principle is that corrections should put the plan and the participant in the same position as if the mistake had not occurred. The document should be reviewed to see if there is any language that addresses the correction of mistaken elections and recoupment of amounts not withheld. The employer should also confirm that any necessary withholding from an employee’s pay does not violate any state wage withholding laws.

Due to the lack of formal IRS guidance regarding the recognition of mistakes and related corrections, the employer should consult with counsel for guidance. Generally, to avoid section 125 and ERISA compliance issues, the best practice is not allowing employees to change their elections once the coverage period has begun and once salary has been taken from their paychecks — unless there is clear evidence of a mistake.

January 04, 2023

FAQ: Which group health plans are subject to MHPAEA?

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Most group health plans and insurers that provide either mental health or substance use disorder (MH/SUD) benefits in addition to medical/surgical benefits (MED/SURG) are subject to the Mental Health Parity and Addiction Equity Act (MHPAEA). This means plans and insurers cannot impose financial requirements (e.g., deductibles, copays, coinsurance or out-of-pocket maximums), quantitative treatment limitations (e.g., number of covered days, visits or treatments) or non-quantitative treatment limitations (e.g., coverage exclusions, prior authorization requirements, medical necessity guidelines or network restrictions) on MH/SUD benefits that are more restrictive than those applied to MED/SURG benefits. In other words, MH/SUD benefits must be provided in parity with MED/SURG benefits. MHPAEA applies to both fully insured and self-insured plans. There are limited exemptions from MHPAEA, including:

  • Self-insured plans with 50 or fewer employees (including employees of related employers in a controlled group).
  • Stand-alone retiree-only medical plan that does not cover current employees.

Church plans are not exempt from MHPAEA.

The Consolidated Appropriations Act, 2023 (CAA 2023) sunset a MHPAEA opt-out for self-insured non-federal governmental group health plans. As of September 2022, 229 group health plans covering municipal employees, public school teachers, firefighters, police and public healthcare workers were opting out of MHPAEA. With the enactment of the CAA 2023, new opt-out elections are no longer permitted and existing elections expiring on or after June 30, 2023, cannot be renewed.