Can an employer who sponsors a self-insured medical plan in a cafeteria plan unilaterally raise employee contributions mid-year? If so, what issues may this raise?

Reg 1.125-4(f)(2) addresses this. A "cost increase or decrease refers to an increase or decrease in the amount of the elective contributions under the cafeteria plan, whether that increase results from an action taken the employee or from an action taken by an employer." You can require a larger amount from your employees, even mid-year. In your case, a status change has occurred, so its likely that some people might drop the coverage. There will obviously be some administrative fees attached to this (HIPAA letters, payroll changes, etc.). Open enrollment is obviously the best time to do this, especially when you have the employer-employee relationship to think of. If changes like this are done at open enrollment, it is easier to lessen the blow to the employees be reducing another cost, maybe by curtailing a seldom-used benefit. Since you are self-funded, you will have some leeway.

If you have someone on COBRA, check the regs. I beleive you can only raise their premiums once in a 12 month period, regardless of what the regular employees are paying.

The participants are not on COBRA. The employer simply does not want to spend as much on providing coverage and wants the participants to pick up more of the cost.

I've dealt with companies that had to do this. It's not a very good idea however. Who did the underwriting for the account? How many employees do you have? It's always best to be a little conservative in figuring out equivalency rates so that you don't have to hit your employees over the head twice in a year. Shoot me an email if you would like to discuss further.