Favorable New Options Are Available for Employer-Sponsored Health PlansAnchin AlertJune 1, 2020
If you are an employer, it is likely that your firm sponsors one or more tax-advantaged health plan options for employees. Examples are traditional medical coverage, Flexible Spending Arrangements (FSAs) and dependent care assistance (DCA) programs.
Normally, employees must elect whether to participate in such plans, and to what extent, before the year begins. The ability to make mid-year changes is very limited.
COVID-19 has changed this.
The IRS recognizes that elections made prior to 2020 may no longer be consistent with current circumstances.
Many people are experiencing higher medical costs than they could reasonably have anticipated, and their elected coverage may be insufficient. The reverse may also be true. For example, an FSA plan may have been funded in anticipation of having elective surgery that cannot take place, or a DCA plan may have been funded in anticipation of a child attending a camp that will not operate in 2020.
Accordingly, for 2020 only, if an employer chooses to permit it, employees may make prospective changes to many of their earlier elections:
- Employees can enroll in previously declined health coverage, alter coverage, or even discontinue it in certain circumstances.
- FSA contributions and dependent care contributions can be increased up to the statutory maximum; they can also be decreased or ended.
- FSA and DCA plans providing a grace period whereby amounts funded in 2019 could be used for expenses incurred through March 15, 2020, will be permitted to extend the grace period through December 31, 2020.
Lastly, one of the provisions of the CARES Act that was passed in March was to permit, on a permanent basis effective January 1, 2020, funds in FSA plans (as well as health savings accounts and health reimbursement accounts) to be used for the purchase of over-the-counter medications and many feminine hygiene products. Employees should be reminded of this as it may factor into their decision as to whether or not to increase funding of their FSA plan on a prospective basis.
Please contact your Anchin Relationship Partner or our COVID-19 Resource Team at COVID19@anchin.com for more information.
Disclaimer: Please note this is based on the information that is currently available and is subject to change.