You probably never heard of COVID-19 when you picked this year’s health insurance policy at work. You couldn’t have planned for the coronavirus pandemic when you signed up for a 2020 flexible spending arrangement (FSA), either. But you might not be stuck with the choices you made in 2019 with respect to employer-provided health insurance and FSAs for 2020. That’s because the IRS is letting workers make mid-year changes to their health insurance coverage and FSAs. It’s also expanding FSA rules concerning carryover and grace periods.
But there’s a catch: You can only take advantage of the new rules if your employer modifies its benefit plans. If your company doesn’t want to make the necessary changes, then you’re out of luck. But assuming your bosses are on board, here’s a rundown of the mid-year health insurance changes allowed, the enhanced rules for FSAs, and even some adjustments that help people with health savings accounts (HSAs). Hopefully, the added flexibility will help if you’re dealing with unexpected medical and dependent care expenses because of the coronavirus outbreak.
Mid-year changes to health insurance plans
Normally, you can’t change your employer-provided health insurance coverage during the year unless there’s a qualifying “life event,” such as a marriage, divorce, birth or adoption of a child, death of a covered family member, child turning 26, move to a new home, or change of employment status within the family. However, for many workers, the health insurance they signed up for last year isn’t sufficient to handle unanticipated medical expenses linked to the coronavirus.
To help alleviate the problem, the IRS is allowing employers to modify their health benefit plans so that workers can make certain mid-year changes to their 2020 health insurance choices. Changes are only allowed on a prospective basis. Specifically, an employer, in its discretion, can amend its health plan to allow each employee to:
An employer is not required to allow all (or any) of these changes. It can pick and choose which of these new elections to offer. An employer can also limit health insurance changes to those that would increase or improve a worker’s coverage (e.g., by electing to switch from self-only coverage to family coverage, or from a low-option plan covering in-network expenses only to a high-option plan covering expenses in or out of network).
Mid-year changes to FSAs
Workers can also make mid-year changes to their health and dependent FSAs — again, if their employer modifies its FSA plan. Thanks to the IRS’s blessing, employers can allow workers to:
As with mid-year changes to health insurance plans, employers can allow one, both or no changes. They can also limit mid-year elections based on FSA amounts that are already reimbursed.
Changes to FSAs are only permitted on a prospective basis, though. So, for example, you can’t get back a contribution you already made.