Change in contribution amount.

[Guest Tbrown]

This should be an easy one for all of you. If an employer changes medical insurance providers in the middle of the year (in this case as of 4/1/04), is that an opportunity for the employees to change their withholding amounts for the healthcare re-imbursement plan? Also, would this be an event that would allow the employer to increase the maximum (currently it is $1,500) amount an employer can use?

Thanks,

Tim

[oriecat]

No. The applicable section of 1.125-4 is (f) Significant cost or coverage changes. It specifically says "This paragraph (f) does not apply to an election change with respect to a health FSA (or on account of a change in cost or coverage under a health FSA)."

[Guest Tbrown]

Thanks oriecat. Would this be the case even if the change in health insurance providers resulted in a significant increase in cost of health-care benefits such as copays and deductibles greatly increasing? It would seem rational to me (I realize from my years on the pension side that rational thinking doesn't account for much) to think that it would be an exception. And if it isn't, what would the exceptions be?

Thanks.

[papogi]

oriecat is right. No matter what the size of the cost increase, no changes to health FSA's are allowed. 1-125-4 specifically says No in the case of health FSA's. Changes are allowed in your example to other amounts going through the 125 plan (e.g., if this new plan requires larger payroll deductions for the regular medical coverage, that increase can be taken pre-tax).

[oriecat]

I agree it would seem rational to allow changes in those instances,such as a large change in deductible or copays. Unfortunately when is the IRS ever rational?!

[Guest RichelleHJ]

To add to the original scenario of changing medical insurance plans mid-year - What if, because of this change and increase in premiums, the EMPLOYER wants to contribute more money to each of the FSA accounts that have chosen a higher deductible plan? Would the employer's contribution be allowed? or is that another "change of FSA election" that would not be allowed? I have been searching for an answer to this for more than one employer so any help would be GREATLY appreciated!!

[mroberts]

I'm pretty sure there's nothing that would prevent this. Worse case scenario is that the employer would just need to set up a different Section 105 plan, however, I don't think this would be ncessary. Just call your flex plan administrator to confirm the simplest way to get this done.

[Guest RichelleHJ]

OK - to beat the horse to death - what if the employee made a change in coverage and as a result had additional employer dollars to spend. Could the employer put those dollars in the FSA for just one person?