Unreimbursed Medical Flex Spending Accounts

[Guest Auditor]

We are now offering a new benefit to our employees (dental insurance)and since it is mid-year, can the employees increase or decrease their unreimbursed medical spending accounts because of it? Is a new benefit a qualifying event to change their elected amounts?

[oriecat]

Unfortunately, no, to my understanding.

[leevena]

Sorry, no can do. I suspect you won't have too much of a problem though. It seems to me from the employee perspective the addition of a dental plan will decrease my out-of-pocket expenses. By decreasing my out-of-pocket expenses the employee may have over estimated their costs. For example, I sheltered $1500 of expenses due to expected dental expenses, but now some of that may be covered. I say you may not experience much of a problem is because 1) how many of those enrolled in the unreimbursed med FSA identified significant dental expenses, and, 2) since this is dental plan is on a virgin group, you may have some waiting periods or pre-ex's that will limit the amount of coverage provided by the dental plan.

You may want to review these two factors and determine what kind of problem you may or may not have.

Good luck.

[GBurns]

I thought that this would be allowed as a significant coverage change under Tres Regs 1.125-4(f) 3)(ii).

You might want to run it through www.changeofstatus.com and see what comes out or run it through EBIA if you have access.

[Slider]

Under Treas Reg 1.125-4(f)(1), the significant cost or coverage election change rules specifically do not apply to health fsas, meaning that an election change would not be permitted.

[leevena]

The regs allow for an enrollee to change their plan selection, such as add the dental to their coverage, but does not allow for the fsa amount to change.

[Kirk Maldonado]

The issue about FSAs is not relevant. You can't pay premiums out of an FSA anyway.

What you want to do is to pay the insurance premiums through a premium only plan, which is not subject to the FSA rules.

[QDROphile]

The issue about FSAs is relevant if the employee wants to reduce the orignal FSA election because insurance will now pick up some dental costs that that the employee expected to pay out of pocket (and then be reimbused). Or now that the employee has insurance, the employee might be able to afford having dental work that the employee would have skipped, but has to pay an affordable deductible or co-pay. The employee would like to increase the FSA election to cover the out of pocket amount.

[GBurns]

It is irrelevant that "You can't pay premiums out of an FSA anyway." and I do not see where anyone said that it would or could.

The OP and stated that dental insurance will now be offered and also asked if this would allow employees "to change their elected amounts?"

It is doubtful that the question related solely to FSA unreimbursed medical spending account since the OP used the phrase "change their elected amounts". IMHO the use of the plural "elected amounts" implied more than 1 amount and I interpreted that to mean BOTH premium and FSA.

In any case the employee would first have to enroll in and then pay the dental onsurance premium in order to be covered by the dental plan. Normally and usually such dental insurance premiums would be paid through the section 125 Cafeteria Plan and therefore their elected amount (salary reduction agreement) would have to be changed, wouldn't it?

The OP wanted to know if the election could be changed and my interpretation was that there were 2 different changes in question:

1. Change of election for the additional dental insurance premium, and

2. Change of election for better handling of out of pocket expenses using the FSA in any of the ways that QDROphile points out.

Do I have to address every issue? No.

Am I free to give an opinion about a selected issue or aspect ? Yes, I think so even if you, Kirk, did not give permission.

[Kirk Maldonado]

QDROphile:

Thanks for pointing that out.

I had focused on the person paying the insurance premium for the new coverage. Now I understand that wasn't the issue that everyone else was addressing.

I think my point is still valid; just not germane to the discussion thread.