Until recently an employee participant in a cafeteria plan could only make mid-year changes to their elections within the plan if it fell within specific exception. Previously, there was no exception allowing an employee to drop employer-sponsored health insurance coverage to purchase health insurance on a public exchange as part of the Affordable Care Act mid-year.
IRS Notice 2014-55 now includes language specific to employee participation in public exchanges. An employee participant in a cafeteria plan can change their cafeteria plan election mid-year if the employee has a reduction in hours to an average of 30 hours per week while remaining eligible for health insurance or if the employee wants to purchase health insurance through the public exchange without periods of duplicate or lapsing coverage. These additional exceptions are only available if the cafeteria plan is not a health FSA and it provides minimum essential coverage. This new exception is not automatic. The cafeteria plan documents must be amended to permit those election changes.