Employers increasingly encounter benefit administration questions involving employees and family members whose immigration, residency, or work authorization status changes during the plan year. These situations often raise questions regarding benefit eligibility, mid-year election changes under a §125 cafeteria plan, HIPAA special enrollment rights, COBRA, and carrier administrative requirements.

Immigration status, citizenship, work authorization, tax status, and health plan eligibility are separate legal concepts. A change in one area does not necessarily affect the others. The following guidance addresses several of the most common scenarios employers encounter.

General Principles

Before evaluating any immigration-related benefits issue, employers should first identify which legal framework governs the question being asked. A change in immigration status or residency does not necessarily affect benefit eligibility, nor does it automatically create a right to enroll or disenroll from coverage.

When analyzing these situations, employers should consider the following questions:

• Has eligibility for coverage actually changed under the terms of the plan?
• Does a permitted mid-year election change event exist under §125 rules?
• Has a HIPAA special enrollment event occurred?
• Has a COBRA qualifying event occurred?
• Does the plan document or carrier impose certain eligibility or administrative requirements?

Social Security Numbers

Eligibility

A Social Security Number (SSN) is generally not required under federal law for an individual to be eligible for employer-sponsored group health coverage. Instead, eligibility is typically determined by the plan document, and, for fully insured plans, the insurance carrier’s eligibility rules. In general, an SSN or Taxpayer Identification Number (TIN) is not required for the employee’s benefits enrollment unless the plan eligibility rules are written to specifically require it, or if the carrier requires it.

Especially for spouses and dependents, if the carrier or plan eligibility rules do not specifically require an SSN or TIN, and the spouse or dependent otherwise meets the plan eligibility rules, enrollment is generally allowable.

Documentation

Carriers commonly request documentation establishing the dependent relationship, such as a birth certificate, marriage certificate, passport, or other identifying information when an SSN/TIN is unavailable. The plan’s eligibility rules could also require an SSN/TIN to be provided prior to enrollment, but it isn’t required to do so.

Other Considerations

Sponsors of self-funded major medical plans should request spouse and dependent SSNs or TINs upon enrollment to ensure compliance with §6055 coverage reporting requirements (Forms 1095-B and 1095-C).

However, for ACA reporting purposes, the carrier or employer is not actually required to have a valid SSN/TIN so long as reasonable efforts are made to collect it for any individuals enrolled in the medical coverage. To meet this requirement, the employer or carrier should request an SSN/TIN upon enrollment, but if the employee or dependents do not provide it, the plan could still allow enrollment. The employer would then need to make two additional attempts to obtain an SSN/TIN for enrolled individuals, but if the SSN/TIN is not provided, a date of birth may be used instead on Forms 1095.

Work Authorization

Employment Considerations

The Immigration and Nationality Act (INA) contains anti-discrimination provisions that generally prohibit employers from treating individuals who are authorized to work differently because of their citizenship or immigration status. Employers may need to coordinate with immigration counsel to determine how best to handle employment status or compensation once an individual’s work authorization is no longer valid.

Benefit Eligibility

The loss, expiration, or revocation of work authorization is primarily an employment and immigration law issue, not a benefits eligibility issue. By itself, a change in work authorization status does not automatically end an employee’s health coverage. Whether coverage continues depends on the employee’s status under the terms of the health plan.

If the employee’s employment is terminated, health coverage will generally end under the plan’s normal eligibility rules, and COBRA or applicable state continuation coverage should be offered, if required.

If the employee remains employed, employers should determine whether the employee continues to satisfy the plan’s eligibility requirements. Key considerations include:

• The plan’s definition of an eligible or active employee;
• Any minimum hours requirements;
• Applicable leave of absence policies; and
• Whether the employee remains eligible under an ACA measurement and stability period, if applicable.

Because loss of work authorization generally does not create a federally protected leave entitlement, benefit continuation will typically depend on the employer’s policies and the plan’s eligibility provisions. If the employee no longer meets the plan’s eligibility requirements, coverage generally ends in accordance with the plan’s terms.

Employers should apply eligibility and leave rules consistently to similarly situated employees and review plan and carrier requirements before making benefit determinations.

Mid-Year Election Changes

The loss of work authorization by itself is not a recognized §125 election change event. However, related employment actions may create permissible election changes, such as the loss of plan eligibility. Furthermore, even if a permissible mid-year change isn’t occurring, if the employee is still eligible for benefits and is no longer receiving a paycheck, and the employee does not make the required employee contributions outside of payroll, coverage could be terminated due to nonpayment.

COBRA

For group health plans subject to federal COBRA, an individual’s continuation rights are triggered only if a recognized qualifying event occurs that causes a loss of coverage. If the loss of work authorization results in a loss of eligibility under the plan due to a reduction in hours or termination of employment, that loss of eligibility will be a COBRA qualifying event for the employee and any eligible dependents covered at the time the employee lost eligibility.

Relocating Outside the United States

Employers occasionally receive questions when an employee, spouse, or dependent relocates outside the U.S., either temporarily or permanently. These situations may arise because of military assignments, international work assignments, retirement, family obligations, deportation, or other personal reasons. While an international relocation may affect how healthcare services are accessed, it does not necessarily affect eligibility for employer-sponsored health benefits.

Eligibility

The first step is determining whether the individual continues to satisfy the plan’s eligibility requirements.

• For employees, an international relocation may affect eligibility if the move changes the individual’s employment status, such as terminating employment or transferring to a foreign affiliate that does not participate in the employer’s health plan.
• For spouses and dependents, many employer-sponsored health plans determine eligibility based primarily on the individual’s relationship to the employee and the employee’s continued eligibility for coverage. However, some plan documents or insurance carriers may impose residency requirements or otherwise limit coverage for individuals who permanently reside outside the U.S.

Accordingly, employers should review both the plan document and any applicable insurance carrier requirements before assuming that coverage may continue or must terminate.

Mid-Year Election Changes

A change in residence, including outside the U.S., can serve as a permitted election change event under §125 rules permitting coverage to be dropped mid-plan year, but only if the move affects eligibility for coverage under the employer’s plan. Otherwise, the employee may have to wait until open enrollment to adjust pre-tax elections.

COBRA

If the relocation results in a loss of eligibility, or if the employee voluntarily chooses to drop coverage, that may not trigger a COBRA continuation right. COBRA rights are triggered only when the loss of coverage is tied to one of the following events:

• Termination of employment
• Reduction of hours
• Divorce or legal separation from employee
• Death of employee
• Dependent child losing dependent status
• Employee’s entitlement to Medicare

COBRA rights will generally still apply to individuals moving outside of the U.S. This is true even if the plan will provide only limited coverage to individuals for care received outside the U.S. There is a small exception under federal COBRA for non-resident aliens who were not paid in U.S.-source income at any time while employed and enrolled in the plan.

Practical Considerations

Even when an employee or dependent remains eligible for coverage, employers should consider several practical issues associated with living outside the U.S., including:

• Whether the group health plan provides coverage for treatment beyond emergency medical services received outside the U.S.;
• Any insurance carrier administrative requirements for members residing internationally;
• How premiums will continue to be paid if the employee is no longer receiving payroll compensation; and
• Whether the employer should discuss alternative international or expatriate health coverage if the group health plan provides limited overseas benefits.

Relocating to the United States or Becoming Lawfully Present

Eligibility

Moving to the U.S. or becoming lawfully present generally does not, by itself, affect eligibility for employer-sponsored health coverage. Instead, eligibility is determined by the terms of the plan and any applicable carrier requirements.

For spouses and dependents, eligibility is often based on the individual’s relationship to the employee rather than citizenship, immigration status, or residency. However, some plans or carriers may impose residency or service-area requirements. Employers should review both the plan document and carrier requirements before making eligibility determinations.

HIPAA Special Enrollment

Neither relocating to the U.S. nor obtaining lawful immigration status generally creates a HIPAA special enrollment right. HIPAA special enrollment rights arise only when one of the specific triggering events recognized under federal law occurs, such as the loss of other qualifying coverage, marriage, birth, adoption, or placement for adoption.

Employers should determine whether another qualifying event has occurred, for example, whether the employee recently got married, whether there was a recent birth or adoption, or whether the dependent recently lost eligibility for other coverage. If yes, the plan may be required to allow mid-year enrollment, but otherwise it may be necessary to wait for open enrollment.

NOTE: It’s not perfectly clear when a loss of foreign coverage triggers a HIPAA special enrollment right. Loss of health coverage provided by foreign governments (e.g., the Canadian health care system) that are not tied to employment, and plans of foreign governments, generally would not trigger special enrollment rights. However, loss of health coverage under plans provided by foreign employers probably would.

Mid-Year Election Changes

Since family members moving to the U.S. is not a HIPAA special enrollment event, there is no right that guarantees the employee the opportunity to add them to the plan mid-year upon moving here. As mentioned above, a change in residence on its own is only a permitted election change event under §125 rules if the move affects eligibility for coverage under the employer’s plan. Therefore, it may be necessary to wait until open enrollment to make a pre-tax election change unless plan eligibility is tied to residency or immigration status.

Marketplace Considerations

Although becoming lawfully present in the U.S. generally does not create mid-year enrollment rights under an employer-sponsored health plan, it may allow an individual to qualify for a special enrollment period through the public Marketplace. Marketplace enrollment rules are separate from HIPAA special enrollment rights and the employer’s cafeteria plan rules.

Additional Compliance Considerations

Privacy Considerations

Immigration related documentation should be treated as confidential employment information. Employers should collect only the information necessary to administer the health plan and limit access to individuals with a legitimate business need.

Open Enrollment

Despite all of the immigration-related situations that may arise, employers should always keep in mind that eligible employees can always choose to add or remove their eligible dependents during open enrollment so long as the dependent(s) otherwise meet the eligibility requirements under the plan.

Program Overview

The programs generally hinge on the assumption that an employee’s taxable income can be significantly reduced in exchange for participating in a wellness program and, in some cases, by purchasing other products. These arrangements generally start with the employee paying a “premium” for the program on a pre-tax basis through the employer’s cafeteria plan. This premium is set very high (e.g. $1,000+ per month), reducing the employee’s taxable income and the employer’s payroll taxes. Then supposedly employees either receive such amounts back as incentives or reimbursement for participating in a wellness program or can purchase other products available via the program (e.g., fixed indemnity plans). There is also often a monthly or annual fee that is withheld from such amounts by the vendor to cover the cost and administration of the program. The program descriptions of exactly how much and on what terms the money will be available to employees is often vague.

Tax Implications

An employee’s taxable income cannot be magically reduced without being used toward something that the Code recognizes as a tax-favored benefit. The following table lists common examples of benefits that can be provided by employers to employees and excluded from employees’ taxable income or paid for by employees on a pre-tax basis through a cafeteria plan.

Many of the programs offer incentives to engage in various healthy behaviors (e.g., annual physicals, vaccinations, screenings) along with access to telehealth, counseling, and preventive care. IRS guidance indicates an incentive under a wellness program is excludable from an employee’s income only if it pays for or reimburses qualifying medical care. Reimbursement solely for participating in various wellness activities should therefore be included in taxable income. Payments (or premiums) for access to telehealth, counseling, and preventive care might qualify for tax-favored treatment, but it seems unlikely such costs would reach $500+/month; and for those covered under an individual or group health plan, arguably preventive coverage is already available at no cost under such plans.

In addition, the programs may offer some flavor of fixed indemnity product(s), with a portion of the employees’ pre-tax contributions covering the premiums. However, the IRS has clarified many times that if premiums for a fixed indemnity plan are paid for on a tax-favored basis, then any benefits paid out by the plan need to be included in the employee’s taxable income. See IRS Memorandum from 2017 here – https://www.irs.gov/pub/irs-wd/201703013.pdf

If all payments/reimbursements via these programs were for qualifying medical expenses, or other benefits qualifying for tax-favored treatment, the programs may be okay. But the amounts handled on a pre-tax basis through the employer’s cafeteria plan instead appear to regularly provide reimbursement in excess of actual unreimbursed medical expenses. When that’s the case, employees would then owe income taxes on such amounts and employers would likely owe additional payroll taxes.

IRS Guidance

In final regulations, the IRS stated that “an increasing number of arrangements, some involving fixed indemnity plans and policies, that distribute cash benefit payments, purportedly for medical expenses, even if any expenses incurred may already have been reimbursed through other coverage, or participants do not incur any medical expenses within the meaning of section 213(d) of the Code. In some cases, no medical expenses are incurred and participants simply complete certain health-related activities. Benefit payments from such accident and health plans that are not made on account of medical expenses incurred generally would not qualify for exclusion from gross income, FICA, FUTA, or Federal income tax withholding.” The IRS indicated they intend to issue more detailed guidance on the taxability of these types of arrangements in the future. The final regulations can be found here – https://info.groom.com/27/1454/uploads/2024-06551.pdf

Summary

Vendors are continuously tweaking their programs to try and get around the IRS’ latest pronouncement on why these arrangements do not work, but the IRS has repeatedly advised in a series of letter rulings and regulations that these programs claiming to save taxes by having employees pay for “wellness” or other unsubstantiated expenses on a tax-favored basis would result in at least some of the benefits being treated as taxable income to the employee. Without the promised tax advantage, the entire scheme collapses. The risk is that if the program (or participating employees) were audited by the IRS, employees may owe a significant amount of additional income taxes, late penalties and interest; and the employer may then owe additional payroll taxes, penalties and interest on such amounts.