COVID-19 Changes Rules on Health Plan Enrollment, Flex Accounts

With a global pandemic and rising unemployment, 2020 isn’t shaping up as many patients expected.  Now the Internal Revenue Service has loosened restrictions to help patients deal with medical expenses and unexpected life changes.

Flexibilities in Health Plan Enrollment

New guidance from the IRS highlights several policy changes that employers can implement: 

  • People with employer-sponsored health plans may now sign up for coverage mid-year.  In the past, people generally were allowed to sign up only during open enrollment.  
  • People can now switch plans or change the level of coverage within their plan mid-year.  Previously, patients could make changes mid-year only with a life event, such as the birth of a child or a change in their spouse’s employment status.

The IRS’ new approach allows patients with employer-sponsored plans to adjust to unexpected changes brought on by a turbulent year.  People furloughed at work, for example, may opt to switch to a less expensive plan to save costs.  Alternatively, people concerned about health complications related to COVID-19 may want to increase their level of coverage – or to sign up for coverage if they previously had not.

Changes in Flex Spending Account Rules

The IRS has also changed the rules on flex spending accounts, pre-tax accounts frequently offered by employers alongside health insurance.

Employees can fund these accounts with up to $2,750 pre-tax, usable for prescription medications, medical supplies, eyeglasses and other approved medical expenses.  Employees traditionally decide during open enrollment how much to contribute to their flex spending account for the calendar year.  That amount is deducted incrementally from their paychecks.  

According to the IRS, employers may now be flexible on two provisions: 

  • People may now change their annual flex spending account contribution amount mid-year.  People who are struggling financially, for example, can decrease their contribution and free up more take-home pay.  Alternatively, people with unexpected medical expenses can increase their contribution amount to cover future 2020 medical costs or to reimburse themselves for medical expenses incurred earlier this year.
  • The IRS also now allows employers to increase from $500 to $550 the flex spending account balance that can be carried over into the next calendar year.    

Flexibilities in both health plan coverage and flex spending account contributions apply only to the 2020 plan year.

The interconnected challenges of health, health care access and financial considerations has impacted many households during the COVID-19 pandemic.  While IRS changes are not a wholesale policy solution, they empower patients to maximize their care in a cost-effective way during turbulent times.

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