Can an employee discontinue coverage under a section 125 plan?

Section 125 plans have an irrevocability rule which states that once an election has been made under a section 125 plan it cannot be revoked during the course of the plan year except for certain allowable events..

1. Changes in status such as:
• a change in legal marital status
• a change in the number of dependents
• a change in employment status of employee, spouse, or dependent(s) affecting benefit eligibility under a cafeteria plan
• a change causing the loss of eligibility for a dependent
• a change in the employee's, spouse's, or dependent's place of residence


2. Leaves of absence (all types, including FMLA and non-FMLA leaves)
• Important Note: Employees taking a leave under the Family and Medical Leave Act (FMLA) have the right to maintain their health coverage throughout that leave. This can be paid for in one of three ways: 1) the premiums are paid on a pre-tax basis before the leave (this cannot be the only option made available), 2) the premiums are paid on a pre-tax basis after the leave, or 3) the premiums are paid on an after-tax basis during the leave.


3. Significant change in cost of insurance benefits

4. Significant change in coverage provided or benefits offered, such as:
• curtailment of insurance coverage
• addition or significant improvement in benefits offered under the POP plan
• loss of group health coverage offered through a government or educational institution
• change in election under another employer's plan (this resolves the possible "election lock"
problem faced by spouses whose employers have different plan years)
5. Entitlement (or loss of entitlement) to Medicare or Medicaid


6. Certain domestic relations judgments, judicial decrees, or orders mandating coverage (e.g., an order requiring that a divorced parent provides health coverage to a child)


7. COBRA qualifying events


8. HIPAA Special Enrollment Rights arising upon the loss of other health coverage or the acquisition of a new dependent by marriage, birth, adoption, or placement for adoption


• Important Note: Unlike many of the listed exceptions to the irrevocability rule, these specialenrollment rights are not optional for employers. Furthermore, in a major departure from the usual POP plan rules, employees may make retroactive elections due to the acquisition of a new dependent by birth, adoption, or placement for adoption (but not by marriage).


9. Children's Health Insurance Program (CHIP) Special Enrollment Rights arising for employees and dependents who are "eligible but not enrolled for coverage" under a group health plan and 1) have had Medicaid or CHIP coverage terminated or 2) have become eligible for a Medicaid or CHIP group health plan subsidy.


These exceptions are the only exceptions that are explicitly allowed.