New IRS Guidelines allow More Flexibility to Workers in Changing their Health PlansMay 14, 2020
In response to the coronavirus pandemic, the Internal Revenue Service on 12th May 2020 permitted employers to allow their employees to make changes to their health insurance plans, and their flexible spending accounts for health care and dependent care for 2020. Since coronavirus has vastly changed people’s need for healthcare, employers allowed their workers to make mid-year adjustments in health plans. However, as the new guidance, only a few changes were included that were suggested by the groups.
Earlier due to strict rules, employees were unable to change their health plans in the middle of a year but due to this pandemic I.R.S. is giving employers a way to allow their workers to make changes without waiting for the enrollment period. As per the new rules, workers are allowed to drop out of their health insurance upon having another option, or sign up for a health plan, if they failed to sign-up for a plan earlier this year. Employees also have an option to include more family members to their plan, and they can even switch from one employer-sponsored plan to another.
Employers are required to opt for this option if they wish to give additional flexibility to their employees. However, managing this requires some administrative tasks. Since managing insurance sign-ups is a huge task, companies prefer keeping it once a year. Some employer groups were requesting Treasury Department for new options and suggested that some businesses wish to provide flexibility to their workers.
Due to this change, it would be easier for the furloughed employees to temporarily drop the health coverage benefits and resume it once they rejoin offices. This change might also prove lucrative for the workers who were earlier against buying health insurance but changed their view after the emergence of this deadly virus. Cynthia Cox, a vice president at the Kaiser Family Foundation, said employers may prefer this flexibility because this may encourage reluctant employees to get back to work during the pandemic. Uninsured workers are hesitant in returning to work because they fear to expose them to the virus without having health insurance.
The change in workplace health plans contradicts the Trump administration’s policy on health insurance for individuals buying their coverage. Centers for Medicare and Medicaid Services officials refused to have a special enrollment period that would allow uninsured people to enroll in health plans on the individual market. Health officials instead allow uninsured people free healthcare, if they need hospital care for COVID-19.
According to the new rules, workers were allowed to make changes to their pretax flexible spending accounts using which they pay for health care expenses and other dependent care. The pandemic has changed people’s perspective and they have limited options for spending money saved in these accounts. People have postponed many child-care services and elective medical procedures because the man of such services has closed down. Thus, workers who leave money in these account unspent can lose the money.
Therefore, if employees are allowed by employers to enroll in a flexible spending account in the mid of the year, then they could increase or decrease the amount they are set aside in this account and can save up to the usual account limits.
Employers may also give flexibility on the rollovers rules like employees who had money left over from a plan of the 2019 calendar year can spend the rest of the amount this year. Even health plans that generally end their 12-month spending period in May or June could allow extension in the same way.
However, as per new guidelines, flexible spending account that began this year in January are not allowed for extensions. Employees having those accounts are allowed to stop their savings for now and in most cases, they can try to spend the money saved till now so that they don’t lose their money if it remains in the account till next year.