Change in Family Status

[Guest Darla K]

If an employee gets divorced and their medical insurance changes.

Can they add a flexible spending account in mid-year due to the change in family status?

[Guest MSMA]

While your Plan Document allows you some flexibility in determining when mid-year changes can be allowed, this is one area where it is fairly cut & dried....marriage, divorce, birth, death...all allow changes to be made.

[Guest Darla K]

I understand that he can change the amount to increase or decrease a fsa amount. The problem was that he didn't have a fsa set up on his account to begin with.

So can he add it now or not?

[papogi]

How did the employee's medical insurance change? The consistency rules still need to be met depending on the change. He may be able to add the FSA, maybe not. Also, keep in mind that mid-year changes to FSA's do not have to be allowed, and very little is cut and dried with FSA's. HIPAA mandates that changes be allowed to health plan elections in the situations described above, but most FSA's are not subject to HIPAA. What is allowed and not allowed as far as mid-year changes to FSA's should be in the plan doc.

[KIP KRAUS]

If the employee’s medical plan changed so that he had higher deductibles and co-payments then the addition of a FSA, in my opinion would be consistent with the change in status.

[papogi]

Since Darla didn't give details of this situation, we can only talk hypothetically.

Assume the employee had the spouse covered under his/her plan, and did not have an FSA. They divorce, and the spouse loses coverage. The employee can go to single coverage. He/she could decrease an existing HCFSA, but would not be able to start or increase a HCFSA.

Assume the employee was covered under his/her spouse’s plan, and had no coverage under Darla’s plan. They divorce. This is a loss of coverage under HIPAA. He/she can enroll in Darla’s plan, and can start a HCFSA.

Concerning the higher copays or deductible, this would not allow an employee to start or increase a HCFSA. The IRS states that cost changes and coverage changes are not events which allow an employee to change his/her HCFSA or start one [1.125-4 (f)(2) and (3)].

[Guest Darla K]

The employee is getting a divorce and his insurance premium is going down, and that I know is true.

I am asking if he can also add a flexible spending account if one was not in existence before the divorce.

I would assume not because he is dropping a dependent instead of adding a dependent, but since it is a change in family status I was not sure.

[papogi]

You are correct. Since he is dropping a dependent, he cannot add a HCFSA. His change in cost has no effect on his eligibility for a HCFSA, so that doesn't help, either.

Sorry to have put you on the spot for more details, but they did help.

[Guest Darla K]

Thank you so much for the advice. I appreciate it. Sorry I didn't provide more details. Thanks again though for the information.