I may be reading too much into IRC section 125 cafeteria plan rules. I know there are limits on mid-year changes but what about the situation where an employee wants to drop supplemental health insurance coverage and not replace it with something else? In other words, once an employee elects extra insurance coverage to be paid with pre-tax earnings, must they continue the coverage through the year, even if they don't want it?
It just doesn't seem logical that an employee could not terminate coverage and revoke the cafeteria election, but that is what an insurance agent is telling us.

Not an HR person, but there are very limited conditions to add or delete insurance. Just wanting to is not one of them. It protects the insurance pool. I pay premiums for two months and get my $xxx,xxx in benefits and then I drop - I don't think it works that way.

Our insurance allows changes only during the enrollment period unless certain life events occur - death, marraige, childbirth, adoption, etc. Dental and Vision require a two-year committment while health, life, etc. is one year. This is done for the same reasons Randy is mentioning. Remember, group health generally does not have lengthy preexisting condition clauses and often is the only option available for individuals with a history of serious illnesses. Without the enrollment periods, the cost of insurance would be higher.

I assume from your post that this is a supplmental coverage like AFLAC which is not mandatory for your employees. We require all of our employees have to have basic health. Supplemental plans are optional. We have run into situations where an employee elects a one or two supplemental coverages and then realizes they can't afford it comfortably. We have been able to use reasons such as "change in work status" of them or their spouse to get the coverage for them dropped. In one case we actually just called the company and said - they can't afford to pay their bills - and they gave us a waiver....

I thought changes to a pretax deduction were only allowed if qualifying events occurred. These are IRS Section 125 plan rules, not just a carrier or plan rules. I'm not an expert, but am sure that "I can't afford it now" is not one of the qualifying events. I think the qualifying events are a change in family or employment status, such as marriage, divorce, birth, death of your spouse or child, or termination of employment of your spouse. You can only drop coverage during yearly open enrollment outside of a QE.

I know plans rarely get audited, but your plan can be found to be in noncompliance if you don't follow Section 125 rules.