Jump to content

Health FSA - Special Enrollment?


Guest JTK
 Share

Recommended Posts

I have already maxed out my health FSA elected reimbursement account. I have a baby and want to increase the elected amount under my health FSA as a result of the status change. I've sumbitted the election change form within 30 days after birth. I want the increased amount effective as of the date of birth, so that expenses incurred on and after the birth (and before the date that I actually submit the status change election form) to be covered. Do FSA administrators allow this, since it seems (from a policy perspective) so similar to a retroactive pre-tax contribution change under the special enrollment reg (1.125-4(b))?

Link to comment
Share on other sites

I can't speak for all administrators, but we do not allow a retroactive change to FSA or DCA accounts. We increase the pledged amount on a prospective basis only - the first of the month following the election change and this is stated in our SPD. Check your SPD or plan document to see what your plan allows.

Link to comment
Share on other sites

An FSA is not just subject to family status change rights but is also subject to HIPAA special enrollment rights as a group health plan. Under the special enrollment right for birth, adoption, or placement for adoption of a child, the election change is required to be retroactive to the date of birth, adoption, or placement for adoption if the Plan Administrator receives the election within 30 days of such event. Proposed HIPAA regulations not yet effective would only require an employee to give notice within 30 days of the birth and then grant a reasonable time thereafter to complete the forms and STILL get retroactive coverage to date of birth.

Link to comment
Share on other sites

Initially I did think of the special enrollment right, but reading the preamble to the final HIPAA regulations, I suspect that most health FSAs are "excepted benefits" and are not required to offer special enrollment. Then, the regulation under 1.125-4(b), which allows retroactive changes in pre-tax elections in connection with special enrollment upon birth, it seems, would not apply.

This is from the HIPAA regulation preamble:

Health FSAs

Some comments asked about the extent to which health flexible spending arrangements (FSAs) are subject to these regulations. A health FSA generally is a benefit program that provides employees with coverage under which specified, incurred expenses may be reimbursed (subject to reimbursement maximums and any other reasonable conditions) and under which the maximum amount of reimbursement that is reasonably available to a participant for a period of coverage is not substantially in excess of the total premium (including both employee-paid and employer-paid portions of the premium) for the participant's coverage. Coverage and reimbursements provided to an individual under a group health plan that is a health FSA and that conforms to the generally applicable rules for accident or health plans qualify for the same tax-favored treatment that generally is extended to coverage and reimbursements under employer-provided accident or health plans. Health FSA reimbursements typically provide coverage for medical care expenses not otherwise covered by the employer's primary group health plan. A health FSA is permitted to operate under a cafeteria plan described in section 125 of the Code. Pursuant to the rules of section 125, an employee can elect to reduce the employee's salary in order to pay for health FSA coverage without the employee having to include that portion of the salary in gross income. Commonly, the maximum benefit payable under a health FSA for any year is equal to the amount of the employee's salary reduction election for the year, plus any additional employer contribution for the year.

The April 1997 interim rules did not address the extent to which health FSAs qualify as excepted benefits. On December 29, 1997, a clarification to the April 1997 interim rules was published that specified the circumstances under which a health FSA qualifies as excepted benefits. (62 FR 67688) That clarification stated that benefits under a health FSA are treated as excepted benefits if the FSA meets certain requirements. Specifically, FSA benefits are treated as excepted benefits if the maximum benefit payable for the employee under the FSA for the year does not exceed two times the employee's salary reduction election under the FSA for the year (or, if greater, the amount of the employee's salary reduction election under the FSA for the year, plus $500). In addition, the employee must have other coverage available under a group health plan of the employer for the year, and that other coverage cannot be limited to benefits that are excepted benefits.

Based on section 9832©(2)© of the Code, section 733 ©(2)© of ERISA, and section 2791©(2)© of the PHS Act, these regulations adopt the December 29, 1997 guidance with some additional clarifications. Specifically, these regulations clarify that to be considered excepted benefits, a health FSA must meet the definition of a health FSA in section 106©(2) of the Code. Also, these regulations clarify that other group health plan coverage not limited to excepted benefits must be made available for the year to the class of participants by reason of their employment. Similarly, the maximum amount payable to any participant in the class for the year is the amount to consider when determining whether the maximum amount payable under the FSA for the year complies with the limit specified in the previous paragraph. Additionally, these regulations clarify that an employer credit under a health FSA that an employee can elect to receive as taxable income is considered an employee salary reduction election. However, if the employee cannot receive the employer credit as taxable income (that is, the credit is lost unless the employee uses the amount for nontaxable benefits under a cafeteria plan), then the amount is not considered an employee salary reduction election.

Link to comment
Share on other sites

The administrators I've dealt with allow the coverage to be retroactive to the event (birth) but the election change ($ amt to be pre-taxed per pay period) is prospective, as required by 125. Claims would be paid back to the date of birth.

Link to comment
Share on other sites

JTK:

Thanks for posting the detailed information about excepted benefits.

Doesn't this mean, basically, that the FSA is not subject to ERISA?

If that is the case, couldn't you design provisions which are not preempted by ERISA?

If that is the case, I would assume the FSA provisions would be subject to state law?

Don Levit

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...