Employers have important decisions to make around COVID relief and their group health plans.
FSA and COBRA both have COVID relief available that creates opportunities and challenges for employers.
In this year of unprecedented challenges and upheaval, employers and their employee benefits teams have encountered a series of relief measures designed to protect their active and terminated employees. While many of the relief measures were required, some, such as the FSA relief available in the most recent appropriations bill, is optional. Employers are faced with decisions around which relief should be offered and determining what the expected impact of that decision will be.
Here is a quick summary of the FSA and COBRA relief options – along with the critical decision points.
FSA relief options – which to adopt, if any?
Carryover relief – Allows plans with carryover to allow participants to carryover amounts greater than $550 per year. The full remaining balance from 2020 can be carried into 2021, and the full remaining balance of 2021 may be carried into 2022, if the employer wishes to amend their plan. This is designed to allow greater access to funds that may not have been available during the pandemic when people stayed away from non-urgent care due to pandemic concerns. Similarly, this can apply to Dependent Care as well. While decisions for both plans years don’t need to be made at the same time, there are benefits to allowing your participants to know if they will have the ability to carry over funds into next year as well. Therefore, deciding for both plan years could be beneficial.
Grace Period extensions – Plans with Grace Periods can extend their grace period to 12 months allowing participants additional time to spend down their remaining balances from 2020 and 2021. While decisions for both plans years don’t need to be made at the same time, there are benefits to allowing your participants to know if they will have the ability to extend access to grace period funds into next year as well – so deciding for both plan years could be beneficial.
Terminated plan participant access to reimbursement – Whether for active employees that drop the plan or terminated employees, this option would allow terminated plan participants to spend-down their account for the remainder of the plan year.
Prospective election changes (without life event), plan years ending in 2021 – Similar to relief made available in 2020, employers may allow plan participants to modify their contributions without the qualifying status change requirement. This will allow them to modify their elections after getting vaccinated or being able to send their children to dependent care later in the year.
DC FSA age out relief – For those participants that had money in their Dependent Care FSA but were unable to use it due to the pandemic and then saw their child age-out of eligibility for dependent care reimbursement, can now continue participation in the DC FSA until their child turns 14. This will allow them to spend-down unused contributions from the prior year. This relief applies for children aging out in 2020 or 2021.
Amend plan rules and plan documents – Employers looking to make any of the above changes must amend their plans and plan documents, and have until the end of the year following the implementation of the changes. For most calendar year plans, that will mean that the changes must be adopted by end of next year, but there is no reason to wait. Making these changes as soon as is feasible avoids potential conflicts with other changes, end of year workload spikes, etc.
So far, we are seeing a lot of interest in extending carryovers and grace periods and allowing prospective changes and less interest in the benefits availability for terminated plan participants (given the relief already available via COBRA).
COBRA non-payment options and considerations.
Last year, COBRA relief was provided whereby employers were required to extend the time available for participants to enroll in coverage, pay their COBRA premiums, report COBRA Qualifying Events and even submit claims.
While most employers opted to treat this as an extension of the grace period (and continue participants in COBRA continuation coverage during the relief period, which lasts from March 1, 2020 until 60 days AFTER the end of the national state of emergency) that was not adopted by all employers.
Employers are being encouraged to review and reaffirm the approach they are taking. With the increased number of employers that are looking to put a termination for non-payment process in place (and reinstating coverage for anyone that subsequently makes a payment), Businessolver is asking all employers to review their plans to ensure that they still wish to continue their current approach.
Additional factors to consider:
If you continue to treat this as an extension of the grace period:
- Aligns with a more conservative reading of the relief
- Could result in claims being paid for periods of time for which the participant has not paid. When coverage is eventually terminated, claim recovery may be warranted.
If you end-date coverage, and reinstate if a payment is made:
- Less conservative reading of the relief.
- Prevents claims from being paid without premiums
- The Biden Administration’s proposed relief plan, the American Rescue Plan, includes a COBRA subsidy which, if passed, could result in the re-notification and enrollment of COBRA participants previously not enrolled
- ACA implications – Keeping people active on COBRA could result in a reported offer/enrollment in coverage on the 1095, only to later have the coverage retroactively terminated, and corrected 1095s being needed.
Employers need to weigh their options related to these relief options and consult with the appropriate counsel and their FSA and COBRA administrators to finalize their plans. These relief considerations are designed to provide relief to your plan participants but often come with administrative considerations that must be factored in.
For more details on the latest COVID-10 Relief package, watch our latest webinar below.