New IRS Rule Allows Mid-Year Plan Changes

There are many ways you can describe the health insurance system, but when it comes to enrollment, “flexible” isn’t always one of them. Each year, you choose your company’s plan and your employees have a set enrollment period (either the ACA open enrollment period or another one of your choosing) during which they can sign up. Once they do, that’s pretty much it for the year, unless they experience a qualifying life event, like marriage or the birth of a child. But 2020 hasn’t been an ordinary year. The IRS has decided to recognize this fact and allow mid-year changes to healthcare plans, and they are leaving the decision about whether to allow these changes up to you, the employer.

What the IRS Is Allowing

cafeteria plan written on a white piece of paper
The IRS has decided to allow mid-year changes to healthcare plans including cafeteria plans.

If you offer your employees a healthcare plan under IRS Section 125 – otherwise known as a Cafeteria Plan – and/or a flexible spending account (FSA), then you have a decision to make this year. The normally rigid rules surrounding when and how employees can make changes to these plans have been suspended by the IRS, and you now have the option of letting them make a one-time change to their plan. This comes at a time when employees may need relief from premium payments, extra coverage, or even more time to use their FSAs. You are not required to let employees make any changes, but if you decide to, you can allow them as many options as you like, including:

  • Enrolling in the plan if they had previously declined coverage
  • Changing from a higher to a lower cost plan, or vice versa
  • Moving from family to individual coverage, or vice versa
  • Dropping coverage, but only if they have another plan in place

Again, you don’t have to allow all or any of these changes. You also have to be sure that you make the options fair and equal to everyone. The IRS even suggests that employers only offer options that would improve healthcare coverage, such as moving from an individual to a family plan or from a plan that covers very little to a more comprehensive plan, to make clear that these changes are meant to benefit your employees, not simply lower your premium contributions. 

In addition to changes to their healthcare coverage, employees now also have more flexibility when it comes to their FSAs. Your employees might be finding it harder to make the most of their FSA dollars these days because they haven’t been going to the eye doctor or dentist, for example. If they use these accounts for dependent care, they may have been unable to send their children to summer camp this year. For this reason, the IRS has extended the grace period for using 2019 funds through the end of 2020. Employees will also be able to roll over more of their funds through 2021.

What Employers Need to Consider

Your employees might welcome the chance to change their insurance policies right now, but you also have to think about how it will affect your business. Consider:caucasian man sitting down writing on a white board.

  • How it will financially impact your business if employees drop their plans, especially if it is the healthier employees who opt out and the employees who need more care who stay in
  • Your plan’s requirements. If your plan is fully-insured, there may be a minimum number of participants, so having employees opt out or change plans might mean having to rethink your whole healthcare policy.
  • The admin! It will take a lot of time and resources to review and process all of the changes. 

It’s a tough decision to make. These are crazy times, and both you and your employees have a lot on your plates. As a small business owner who may already be struggling to provide healthcare, but who also wants the best for your employees, you may want to allow changes, but limit them. Consider following the example set out by the IRS and offer your employees the ability to enroll in or upgrade their plans. You can also decide to do an emergency stock-take: throw together a mid-year employee health survey and see what is on your employees’ minds. You have until December 31, 2021 to adopt your plan (which can be retroactively implemented), so don’t stress too much!

If you find yourself completely confused, then remember, EZ’s knowledgeable agents can answer any questions you have. And if you find YOU need a change in policy for your company, then come to us for instant, accurate, free quotes. We’re ready, willing, and able to shoulder some of the burden of small business healthcare, so get started with us today. Simply enter your zip code in the bar above. Or to speak with an agent directly, call 888-350-1890. No hassle, no obligation!