Guest Post by Shobin Uralil
No employee or employer could have predicted the wide-reaching impact of the COVID-19 pandemic when preparing for open enrollment last fall. Now, to help alleviate benefits costs in 2020, the IRS has taken an unprecedented step with IRS Notice 2020-29 to allow qualifying employees to make mid-year health plan election changes.
This opportunity creates much-needed flexibility in a time of uncertainty. But health care needs are unfortunately even more unpredictable than a normal plan year. We will walk you through what your options are and how to think about health plan selection for the rest of this year.
Specifically, the mid-year changes apply to employer-sponsored health coverage and spending accounts (Health Savings Accounts and Flexible Spending Accounts). This applies to all plans that are regulated by a 125 cafeteria plan. Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (i.e., salary) into non-taxable benefits. Under a Section 125 Cafeteria Plan, you can elect to pay for qualified benefit premiums before any taxes are deducted from your paychecks for health care premiums, FSAs, and HSAs.
Under the new IRS regulations, in 2020, employees are allowed to:
Many of you get a chance to re-evaluate your health care needs and, most importantly, your out-of-pocket costs for the rest of this year. If you or a family member have had a change in your employment type, income, health expenses, or want to review your health care benefits, keep reading.
Mid-year plan changes don’t mean that you can expect new health plan offerings at your current company. Instead, it’s an opportunity to change to another plan or pre-tax saving options that you previously did not select during open enrollment.
There is one important caveat: employers are allowed to ‘determine the extent to which such election changes are permitted and applied, provided that any permitted election changes are applied on a prospective basis only, and the changes to the plan’s election requirements do not result in failure to comply with the nondiscrimination rules applicable to § 125 cafeteria plans.’
Essentially, these changes are not mandatory. This means that your employer can decide the extent to which plan changes are available. Check with your HR or benefits administrator to determine what changes are eligible at your company and when this special period takes place at your company.
Even though this is a ‘mid-year’ open enrollment, it still follows the same key open enrollment parameters. You should select the most cost-effective and personalized health plan option that meets your and your family’s needs.
Review your current health plan offering and your ongoing monthly costs. This includes the following:
Note: All of these costs (or cost scenarios) have one thing in common, they are paid directly by you, not your insurance provider. What is that monthly amount? Did COVID-19 impact your expected monthly costs or your ability to pay for those costs?
Compare your current health plan elections to the full offering of your employer’s health care options. Here is a Health Plan Comparison Calculator to help you get started. Take a hard look at the costs outlined above, review receipts if you have any, and do your best to forecast your health care expenses and financial situation for the rest of the year.
Change or keep your current health plan elections based on your findings. Select the best health, at the best cost, based on the coverage you need. Don’t overpay for coverage you don’t need! It might be time to consider what your health costs are going toward. If you haven’t considered adding a tax-advantaged savings account, like an FSA or HSA, you are overpaying for health care costs. Use this new review period to reconsider your health care and savings strategy.
Take some time to think about what you missed. Health insurance is a direct intersection of your well-being and your personal finance.
Many employees unintentionally overpay for bells and whistle coverage they don’t end up using. The right plan is the one that provides the most personalized and affordable health care coverage for you and your family. You get a do-over this year; make the most of it.
As with all good things, there is always a catch. In this case, it's related to the 2020 FSA and HSA contribution limits. Normally this would not be a concern unless you change jobs or had a qualifying life event. But with this mid-year change, there are some nuances to consider.
If you previously contributed to an FSA in 2020 but decide to now switch to an HSA-eligible health plan, like a High Deductible Health Plan (HDHP), you would expect to be eligible to also contribute to an HSA. However, since you already contributed to an FSA, this disqualifies you from contributing to an HSA in 2020. It will be tough to find guidance around this and other nuanced rules, so check with a financial or tax professional to ensure you remain IRS-compliant.
Without knowing what ‘next’ looks like, it is hard to prepare for the future. But with health care, what we do now know is that saving for the long-term, and the unexpected, is more critical than ever. Health care plans expire every year, but marrying an eligible high-deductible health care plan with a pre-tax savings account creates the only long-term health savings and planning option available today. Whether you are looking for short-term savings with an FSA or planning for a long-term safety net with an HSA, you can have savings ready for every ‘just in case’ scenario, at least for health care costs.
Shobin Uralil is the co-founder and COO of Lively, a top-rated health savings account provider.
August 17th, 2022
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