The health insurance of most working Americans is tied to their employer. This has meant significant obstacles during the COVID-19 crisis as employees find themselves furloughed, working decreased hours or considering coverage for themselves and their families. As a result, the IRS has issued two notices (2020-29 and 2020-33) outlining new opportunities for employees to change enrollment in employer-sponsored health plans and adjust pretax contributions to health flexible spending accounts.
These changes only account for plan year 2020, and allowing changes to plans is optional for employers. We’ve outlined the broader stipulations of these new IRS allowances and their implications for individuals and businesses.
Enrollment and Coverage Election Changes
IRS Notice 2020-29 outlines the ability of employees to enroll or re-elect coverage options for group health plans and Flexible Spending Accounts (FSAs). Through this guidance, employees who previously declined enrollment in an employer-sponsored group health plan will now have the opportunity to enroll, and those already covered have the ability to elect different coverage.
The ability of employees to enroll in employer-sponsored health plans or elect different coverages will have ranging impacts on employers. New employee enrollments and employees opting for more coverage—such as moving from a single plan to a family plan—may result in additional costs for businesses. Employers should consider these additional expenses as they budget for the back half of the year and continue to adjust projections during the pandemic.
Conversely, employees may also elect for less coverage—such as relinquishing dental coverage they’re unable to use this year. This might reduce an employer’s cost and could help offset the cost of new enrollment or higher coverage elections from other employees.
Opportunities for FSA Enrollment and Election
Also included with IRS notice 2020-29 is guidance on new terms for health FSAs and dependent care FSAs. Similar to employer-sponsored health insurance, employees will now be able to enroll or drop coverage, or increase or decrease contributions to an FSA (within annual limits). The 2020 limit for health FSAs is $2,750; the maximum for dependent care FSAs is $5,000 for individuals or married filing jointly and $2,500 for married filing separately.
This also comes alongside new guidance on FSA “use it or lose it” rules. Existing IRS rules allow employers to permit either a grace period or the ability to carry over unused funds from one year to the next. Under the new guidelines, both of these provisions are available for plan year 2020. As far as the grace period, employers can amend their plans to permit employees to spend down through year-end 2020 any remaining 2019 funds that would otherwise be forfeited.
Increased Carryover and High-Deductible Plan Clarification
IRS Notice 2020-33 provides guidance on increased carryover limits for health FSA participants. Effective in plan year 2020, the previous carryover cap of $500 has been increased to $550—20% of the allowable payroll-deductible contribution limit of $2,750—to account for inflation.
Also outlined in Notice 2020-33 is updated guidance on COVID-19 treatment under high-deductible health plans. These plans not only cover COVID-19-related services at no additional cost, they’re now retroactive to January 1, 2020.
As the IRS continues to release updated guidelines and changes to employer-sponsored health insurance plans and FSAs, continue following James Moore’s HR consultants for more information. For assistance navigating these changes, contact us today.
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