Traditionally, section 125 plan elections are irrevocable for a plan year unless a participant experiences a qualifying event. In response to the pandemic, the Internal Revenue Service (IRS) released three notices that provide flexibility through December 31, 2020, concerning
- mid-year plan changes under section 125 cafeteria plans,
- grace periods for health and dependent care flexible spending accounts (FSAs),
- the treatment of COVID-19 testing, treatment and telehealth services on health savings account (HSA) eligibility for high deductible health plans (HDHPs), and
- health FSA carryover limits.
Employers who adopt the new IRS options, allowing mid-year plan changes and extended periods to access unused FSA funds, must formally adopt a plan amendment by December 31, 2021, with retroactivity to January 1, 2020.
Section 125 cafeteria plan mid-year election changes
Notice 2020-29 gives employers the option to amend section 125 plan documents to permit eligible employees to make election changes during the 2020 calendar year, including
- revoke an existing election and enroll in different employer-sponsored health coverage,
- revoke an existing election and attest coverage will be secured elsewhere,
- make a new election if coverage was initially declined, or
- increase or decrease an election to a health or dependent care FSA.
Note: Employers with fully insured coverage can only provide a special enrollment opportunity for health coverage if allowed by the respective carrier. At this time, Aetna, Blue Cross Blue Shield of Kansas City, Humana and UnitedHealthcare have confirmed they are not introducing special enrollment opportunities. Other carriers have not yet confirmed their position. Self-funded plan sponsors interested in this short-term enrollment opportunity should consult with their stop-loss carrier before proceeding.
Extended grace periods
Employers may permit employees to access unused FSA amounts to pay or reimburse medical care or dependent care expenses incurred through December 31, 2020, following the expiration of a grace period or plan year.
COVID-19 services deemed HDHP compatible
Earlier this year the IRS issued Notice 2020-15 which states a compliant HSA-compatible HDHP can cover the treatment of COVID-19 before the plan deductible has been satisfied without jeopardizing a plan’s HSA eligibility.
The newly released Notice 2020-29 clarifies that the relief allowing HDHPs to provide benefits for COVID-19 testing and treatment applies to reimbursements of expenses incurred on or after January 1, 2020. The notice also confirms diagnostic testing for influenza A & B, coronaviruses and any other services required to be covered with zero cost sharing per the CARES Act are to be treated as COVID-19 testing and treatment.
Additionally, the notice clarifies that CARES Act relief regarding telehealth and other remote care services can now be covered before the plan deductible has been satisfied, and it will not disqualify a participant’s eligibility to make contributions to an HSA.
Health FSA carryover limit
Notice 2020-33 allows FSA plan sponsors to increase the $500 health FSA carryover amount. The $500 carryover amount from the following plan year will be indexed for inflation and increased to $550. The increase of $550 can also be retroactively implemented to the 2020 plan year but must be adopted on or before December 31, 2021.
For more information, contact your Bukaty benefits consultant at 913.345.0440.