COVID-19 FAQ: Group Health Plan Considerations

This information is up to date as of April 20, 2020. Due to the rapidly changing nature of this material, there may be new or updated information that is not included here. The DOL and IRS regularly update their websites with FAQs related to these topics. For more information, visit: IRS FAQs | DOL FFCRA | DOL EBSA

For service and support, contact your representative or our support team at support@thinkbenefits.co.

Group Health Plan Considerations

No. Under IRS Notice 2020-15, it is clear that providing coverage for testing for, or treatment of, COVID-19 with no cost-sharing and prior to satisfaction of the minimum required statutory deductible, will not disqualify an individual from eligibility to open and contribute to an HSA.

The relief expires for plan years that begin on or after December 31, 2021.

For example, for a calendar year HDHP, this relief applies as follows:

  • January 1, 2020 – December 31, 2020 plan year, and
  • January 1, 2021 – December 31, 2021 plan year.

In this example, the relief would no longer be available effective with the January 1, 2022 plan year.

Yes. This change is permanent as the CARES Act removed the prohibition that was instituted as part of the Affordable Care Act.

No. Any OTC medicine or drug can be reimbursed on a tax-favored basis through a health FSA, HRA, or HSA without a prescription. A diagnosis of COVD-19 is not required to qualify for this relief.

Whether a plan amendment is necessary will depend on your existing plan terms and the definition of qualified medical expenses. A plan may have broad language that will capture this change without the need for a plan amendment.

Alternatively, the existing terms of your plan may exclude OTC medicines and drugs from reimbursement unless prescribed. If this is the case, your plan will need amending.

Work with your flexible benefit administrator to determine whether a plan amendment is needed, and they should be able to provide you with the required plan language to reflect this change.

In general, plan amendments must be made on a prospective basis. So, if a plan amendment was made April 1, 2020, to provide reimbursement for OTC medicines and drugs on a tax-favored basis, such expense incurred on or after April 1, 2020, would be eligible. Retroactive amendments generally are not allowed.

However, it is possible future IRS guidance could permit tax-favored reimbursement for any OTC medicine or drug without a prescription as of January 1, 2020, even if the plan terms do not align, so long as an amendment is in place by the end of the year. While this seems to be the intent of the CARES Act, further guidance from the IRS is needed.

Effective January 1, 2020, the CARES Act expands the definition of “qualified medical expenses” to include menstrual products. The term “menstrual care product” means a tampon, pad, liner, cup, sponge, or similar product used by individuals with respect to menstruation or other genital-tract secretions.

Generally, ibuprofen, acetaminophen, naproxen, aspirin, cold, and allergy medications are examples of medicines and drugs that may be reimbursed on a tax-favored basis without a prescription.

While the IRS does not have a formal list, most flexible benefit administrators maintain a list and can provide as needed.

With respect to a health FSA or HRA, the employer will decide what expenses are eligible for reimbursement through these tax-favored programs. This is established by employers through the plan terms. While federal law permits reimbursement of any qualified medical expense as defined under Code Section 213(d), the employer’s plan terms may narrow expenses that are eligible for reimbursement through the plan.

For example, an employer has a PPO plan offered alongside a self-funded HRA. The HRA is designed to reimburse the employee for co-pays and co-insurance for expenses under the PPO plan. Nothing in the CARES Act requires the employer to allow HRA reimbursement for OTC medicines and drugs.

On the other hand, since an HSA is an employee-owned account, the employer cannot place limitations on how the employee uses the HSA funds.

Specific IRS-relief is not available for this scenario at this time.

In the meantime, we must rely on choices already permitted under the rules (with vendor approval):

  • Plans can change the run-out period
  • Plans can implement a grace period
  • The Plan could consider a $500 carryover provision

 

However, an individual cannot “cash-out” the health FSA as a result.

Employers that sponsor HDHP/HSA plans should be careful if implementing changes to the FSA that may impact HSA eligibility in the future.

Further guidance from the IRS may be forthcoming in this area.

No. An employee who previously declined a health FSA would need a qualifying life event under the Section 125 rules in order to enroll in the health FSA mid-year. The IRS has not expanded the qualified life event rules for Health FSAs as it relates to COVID-19.

Dependent Care Flexible Spending Account Questions

Yes. When there is a change in the cost of a dependent care provider (including the elimination of cost), a DCAP (also called a dependent care FSA) can permit a mid-year change in the election as long as the cost change is imposed by a dependent care provider who is not a relative of the employee. Employees should be directed to the DCAP vendor to make election changes.

Yes, under two circumstances.

  1. When the childcare provider’s cost has changed, similar to Q12 above.
  2. Where the employee no longer requires DCAP because he/she is no longer working (or is teleworking from home), therefore childcare does not require care outside of the home (or it is not available).

In both scenarios, the employee is able to make changes to his/her DCAP/Dependent FSA elections.

Compliance with the DCAP is ultimately the employee’s responsibility as an individual taxpayer. However, as best practice, it could be helpful to provide employees with information on how to make changes to the DCAP elections in the event your offices are closed.

Eligibility Questions

A change in the ability to pay for coverage is not a reason to be able to make a mid-year election change. Mid-year election changes should be outlined in the cafeteria plan documents. Typically, under the cafeteria plan permitted mid-year election changes, an employee must experience a qualifying life event to make a change to elections made at the outset of coverage/open enrollment. Unless the dependents have experienced some other qualifying life event, an employee is not permitted to make changes to a pre-taxed benefit for the duration of the plan year.

Yes. Any change in eligibility (even if only for a limited time), should be incorporated into the SPD through an SMM.

Continued eligibility for non-medical benefits is determined separately from continued eligibility for the medical plan. Continued eligibility provisions in all applicable plan documents should be consulted to determine how a reduction in hours impacts such eligibility for other lines of coverage.

  • Covered Employees: There will be no reporting change for employees that remain covered.
  • Employees who waived coverage:
    • There may be a reporting change depending on whether the employee is considered an ACA full-time employee during the furlough and whether there is an available safe harbor code to use inline 16. This will depend on specific facts and circumstances that should be reviewed with USI, payroll, and/or your legal counsel.

If the employer is going to adopt this one-time mid-year enrollment opportunity, it should be outlined in an amendment to the plan documents.

Unless these employees are experiencing a cafeteria plan qualifying event permitting a mid-year election change to pay for coverage, then any individuals enrolling (which may include a spouse and dependents) in the plan through this carrier-provided mid-year enrollment opportunity should pay for such coverage on a post-tax basis for the remainder of the plan year.

Special considerations for self-funded plans. Employers with self-funded plans should seek approval from stop-loss carriers before adding new enrollees to the group health plan outside of traditional enrollment or special enrollment opportunities. Employers with self-funded plans should also evaluate the cost and risks associated with these enhanced benefits.

It appears it is up to the employer and contingent upon the terms of the various benefit programs. An example in the cafeteria plan regulations indicates that when more than 30 days have elapsed between an employee’s termination and rehire, the plan (by design) can either allow a new election, require that the old election be reinstated, or keep the participant out of the plan until the next plan year. Any rules your cafeteria plan may already have in place would be found in the plan document.

Generally, under the ACA, if an employee is rehired within 13 weeks (26 weeks for certain educational institutions), the employee maintains his/her status as a full-time employee (or not a full-time employee) for purposes of the employer mandate. Eligibility rules may be written to mirror this treatment.

General plan terms are applicable. Employers will need to review the terms of the various benefit programs to understand how coverage is treated during a voluntary leave of absence. Typically, an employee will only remain eligible if they maintain a certain number of hours of service or are on a protected leave (e.g. FMLA, USERRA, or other state protected leave). To the extent group health plan coverage is lost as a result of a reduction in hours, COBRA applies.

The rules under the Affordable Care Act’s employer mandate have not changed due to COVID-19 or the resulting legislation passed to help employers and citizens during the pandemic. Therefore, an employer is not required to offer coverage but could be subject to an employer mandate penalty for not offering affordable, minimum value coverage to employees who are deemed to be full-time (generally those who have 30 hours of service in a week or 130 hours of service in a month as determined under the monthly or look-back measurement method).

The employer should also look to their plan documents. If these temporary employees fit into the eligibility parameters established by their plan documents (usually established by an hours-of-service threshold) and are not otherwise excluded, then health care benefits should be offered. This may extend to other component benefit programs as well.