Supplemental health insurance open enrollment exceptions are more lenient. Post tax changes are compliant, and allowed by insurers. Female employees are often eager to purchase two supplemental insurance policies outside of her employer’s open enrollment period.

In most cases, the employee can purchase and start coverage outside of open enrollment. But this runs counter to what most people assume. Employees who need to begin coverage right away can equip themselves to advocate this type of change by learning about:

  • Group Health Insurance Open Enrollment Exceptions
  • IRS Open Enrollment Exceptions
  • How Supplemental Health Insurance Differs from Major Medical

Group Health Open Enrollment Exceptions

An employer’s open enrollment period is the limited time during each year where employees can make election changes for many employee benefit choices. There is typically a four to six week window of time where employers provide education about plan options, and employees choose and record elections.

Once the open enrollment period ends, the coverage choices and payroll deduction amounts commence. These choices can’t be changed once the open enrollment period is over. Open enrollment season begins in the late Fall for many employers. The employer decides timing, and the majority elects to schedule their open enrollment so that the new benefit plan year coincides with the new year.

Change in Family Status Exceptions

The key group health insurance open enrollment exceptions are defined as a qualifying change in family status:

  • Marital status
  • Employment
  • Number of qualified dependents
  • Residence

IRS Open Enrollment Exceptions

This timing does not always fit employee needs. There is a legal and compliant method to permit the purchase of supplemental health insurance that most employees and human resource managers do not understand. The exceptions for post tax elections, and the unique structure of supplemental insurance allow this to happen.

Pre Tax Elections

Section 125 of the IRS code allows for premium only plans to be paid for by employees using pre tax payroll deductions. When making any pre tax election, the choice can only be made during an open enrollment period, or if a qualifying life event occurs.

This means that an employee can only purchase or cancel their supplemental health insurance policies paid for with pre tax deductions during their employer’s open enrollment.

Post Tax Elections

But what if the employee chooses to purchase coverage using post tax elections? Post tax elections are not bound by the IRS open enrollment dictates. Employees can purchase and cancel policies outside of open enrollment without violating IRS regulations. Changing post tax elections outside of open enrollment is tax compliant.

Supplemental Insurance Open Enrollment Exceptions

Supplemental insurance works differently than major medical health insurance plans that human resource personnel are most familiar with. These differences are subtle, but important in explaining why changes outside of open enrollment are compliant for employee paid supplemental insurance but not traditional major medical plans. The two main differences that account for this are how benefits are paid, and medical underwriting.

Cash Payments Made Directly to Insured

Supplemental insurance makes cash payments directly to employees, while major medical makes payments directly to medical providers: doctors, hospitals, etc. Because major medical insurance makes payments to providers, there is never a negative tax consequence to employees making pre tax elections.

The reverse is true for supplemental insurance. When a qualifying health event occurs, payments are made directly to the insured. Payments made directly to the insured create tax considerations that do not exist under traditional plans.

For some employees, purchasing supplemental insurance using post tax deductions is preferred. With post tax premium payments for short term disability insurance, the benefit paid to the employee is tax free enabling the employee to replace a larger portion of take home pay. Other policies such as lump sum critical illness insurance and life insurance can only be purchased using post tax deductions.

Medical Underwriting and Open Enrollment Exceptions

Major medical, or traditional group health insurance plans are issued to every employee regardless of health. Preexisting conditions must also be covered provided there was no lapse in coverage greater than sixty three days. Insurers confine election changes to open enrollment only to protect against self selection.

Employees often wait until their health deteriorates to begin coverage, or cancel coverage after getting the medical care they need.

Supplemental health insurance uses medical underwriting and pre existing condition exclusions to protect against self selection. Employees often must show evidence of good health to qualify for a policy, and must wait six the twelve months before any existing condition is covered. Insurers can issue supplemental policies outside of open enrollment without hurting claims experience.

Female Employees Find These Exceptions Critical

Female employees often have the greatest need to purchase supplemental insurance outside of open enrollment. Their needs often change during the course of the year if they decide the time has come to start a family, or have another child. Supplemental insurance must be purchased prior to conception.

Cash payments are made directly to the female employee for normal childbirth experience, along with complications prior to delivery, premature birth, and more. These benefit payments may be much bigger than the premium withheld from her paycheck in advance of delivery.

Timing Matters

Most women prefer making tax payments on a smaller amount (premium) as opposed to a bigger amount (benefit payments). For this reason, most women find post tax elections provides the best payback.

Combine the three together:

  1. Post tax deduction provider greater payback
  2. Post tax deductions allows for elections outside of open enrollment
  3. Supplemental insurance underwriting also allows for enrollment at any time

These issues are often not well understood by HR managers. Has this come up with your employer?