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Employers can Let Employees Change Mid Year Health Plans

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The IRS is allowing employers to permit their employees to make changes to health plans and flexible spending accounts.

In response to COVID-19, the Internal Revenue Service (IRS) is allowing employees to make changes to their healthcare plans and flexible spending accounts even though it is not open enrollment. The new guidance from the IRS applies to “cafeteria plans” under Section 125 of the Internal Revenue Code - which covers employer-sponsored health coverage, health flexible spending arrangements (FSAs), and dependent care assistance programs selected by employees from a variety of options. 

A chance to change options during the pandemic

The IRS stated they are allowing employees to make changes to their health care plans due to the uncertainties of COVID-19. Under normal circumstances, employees can only change their health care coverage options during open enrollment or if they experience a qualifying life event, such as a marriage, divorce, or birth of a child. 

It’s important to note that these policy changes must also be adopted by an employee’s employer. The employer must opt-in if they want to give their employees this new mid-year flexibility. If employers decide to opt-in, the changes will likely be embraced by employees, especially if they have been financially impacted by the pandemic. 

New changes available to employees include:

  • Revoking an existing health plan to make a new election (including changing from single to family coverage)

  • Making a new election for employer-sponsored health coverage that was previously declined

  • Revoking, changing, or making new elections regarding health FSAs and dependent care FSAs

  • Extension of grace periods for use of FSA funds from the 2019 plan year through Dec. 31, 2020

Easing restrictions mid-year is designed to help ease the effects of COVID-19; for example, loss of income or the closing of dependent care providers. 

Easing access to funds

As mentioned above, the new IRS guidance is easing accessibility rules for healthcare flexible spending accounts and dependent-care account rules. These new accessibility rules are important and useful to employees, as the pandemic has caused some changes in how the money in these accounts is being used and funded. A lot of employees have been forced to postpone non-essential care or procedures because of the coronavirus outbreak, while others who caught COVID-19 are spending more on healthcare. Furthermore, the new guidance allows parents to use dependent-care accounts to pay for their children’s summer camp or after-school expenses. 

The COVID-19 guidance also extends carryovers through year-end. This means that for employers who have adopted a carryover provision, their employees can carry over unused funds in their 2020 spending accounts until June 30, 2021. They can carry over $550, which is an increase from $500. You can read the full IRS guidance here.

Dominion’s Benefits Administration product is fully capable of handling this new guidance from the IRS. Plus, employees can choose their plans and review them online at any time. Administrators can automatically withdraw payroll deductions, seamlessly update life events, and store benefit plan information, all from one easy-to-use platform. Request a free live demo below!


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