• What are the highlights of the IRS Notices?

  • Extended Period in Which to Incur Expenses for Health FSAs and Dependent Care FSAs:

    • Employers with a grace period or plan year that ends in 2020 (e.g., plan year ends March 31, 2020, or grace period from 2019 ends March 15, 2020), may extend the period for incurring health and/or dependent care FSA expenses up to December 31, 2020. This provision does not apply to calendar year plans that do not have grace periods.

    • The extension of time for incurring claims is available both to cafeteria plans that have a grace period and plans that provide for a carryover (notwithstanding the general rule that health FSAs may not have both a carryover and a grace period). In other words, a health FSA that allows a carryover would also be permitted to amend the plan to extend the claims period to December 31, 2020. However, this additional flexibility (one-time coverage extension) would only benefit those plans with years ending on a date other than December 31 (i.e., a non-calendar plan year).

      • For example, a health FSA with a non-calendar plan year (e.g., February 1, 2019 - January 31, 2020), a participant would be able to use any remaining amounts from the 2019 plan year as of January 31, 2020 to pay for reimbursable expenses through December 31, 2020, even amounts exceeding the otherwise-applicable $500 carryover limit for the 2019 plan year.

  • During the 2020 calendar year, employers may amend their plan to offer the ability to make prospective mid-year elections for health coverage, health FSAs, and dependent care FSAs.

  • For plans beginning in 2020, employers may amend their health FSAs to permit employees to carryover up to $550. The maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021.

  • Clarifies relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020 (was March 27, 2020).

  • Clarifies that the Individual Coverage Health Reimbursement Arrangement (ICHRA) is permitted to treat healthcare premiums as incurred on (1) the first day of each month of coverage, (2) the first day of the period of coverage, or (3) the date the premium is paid. Payment of the premium for coverage made before the beginning of the plan year can be reimbursed if the insurance coverage starts during the plan year.

• How will HealthEquity administer these changes?

  We have formed a project team to determine how we will administer this update. We will continue to follow up as more information is available.

• Is it required that employers implement these changes?

  Employers are not required to provide these changes to members.

• What are examples of mid-year changes for healthcare FSAs and/or dependent care FSAs?

  The notices allow for the ability to revoke an election, make a new election, or increase or decrease an election.

• Will extending the time for incurring claims impact my employees on an HSA plan?

  Important to note that members may not make or receive HSA contributions when they have health FSA balances, unless the FSA is an HSA-compatible health FSA (e.g., a limited-purpose FSA). Thus, employers who have HDHPs and facilitate the opening and maintenance of employees' HSAs should exercise care to make sure that adding a grace period does not adversely impact their employees' ability to contribute to their HSAs. For example, if a plan year ends on June 30, 2020, and the employer intends to offer an HDHP with HSA starting July 1, 2020, adding a grace period can make employees ineligible to make or receive HSA contributions until the grace period ends.

  But a grace period for dependent care FSAs and HSA-compatible health FSAs (e.g., limited purpose FSAs) would not have any impact on HSA eligibility.

• Is the increase to allow up to $550 for carryover temporary?

  This guidance is not time limited. The carryover maximum is now eligible to be indexed for inflation (similar to FSA/HSA election amounts). For plans beginning in 2020, carryover amounts can be increased to $550. The maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021.

• What is the guidance for HSA-Compatible HDHPs?

  Per prior guidance, member's eligibility to make contributions to their HSAs will not be jeopardized for medical expenses related to COVID-19 testing or treatment paid by the HDHP. Notice 2020-29 clarifies this relief applies for expenses incurred on or after January 1, 2020. It also clarifies that expenses can include "the panel of diagnostic testing for influenza A & B, norovirus and other coronaviruses, and respiratory syncytial virus (RSV) and any items or services required to be covered with zero cost sharing under the Families First Act (as amended by the CARES Act)". Previously, plans that covered telemedicine prior to reaching the deductible disqualified HSA holders from making HSA contributions. This change, effective as of March 27, 2020 (the date of enactment) applies for plan years beginning on or before December 31, 2021. Notice 2020-29 provides that such services provided on or after January 1, 2020 will also be permitted in an HSA-compatible HDHP.

• What is the impact to ICHRAs?

  An ICHRA is designed to provide a means for employees to be reimbursed for premiums for health insurance coverage incurred after the beginning of the ICHRA's plan year. Notice 2020-33 allows the ICHRA to treat healthcare premiums as incurred on (1) the first day of each month of coverage, (2) the first day of the period of coverage, or (3) the date the premium is paid. Therefore, payment of the premium for coverage made before the beginning of the plan year can be reimbursed if the insurance coverage starts during the plan year.

• How is HealthEquity handling premium payments made before the beginning of the plan year?

  For those with individual coverage under an HRA plan, HealthEquity will not deny premium payments made before the beginning of the plan year.

Note: The FAQs above are provided to assist employers and plan sponsors with their research into the potential impacts of the recent IRS guidance. This is not legal advice, and the relief actions are complex and dynamic. As always, we strongly encourage employers and plan sponsors to consult their legal or benefits counsel for conclusive guidance on how the actions apply in their circumstances.