Benefits after Change in Election

[Guest TXCafe]

A participant has a qualifying change in status (in the particular case in question, a marriage) and changes their Medical FSA election. Their inital annual election was $500. In early April, participant submitted a claim and was reimbursed for $500 with receipts in excess of that amount. Late April, participant marries and changes annual election to $1000. Participant submits claim in July for $490-over half of the receipts submitted with claim are from prior to the qualifying event (marriage). Is participant entitled to reimbursement of the claims incurred before the increase in election or only those incurred after the change in status and election change. Participant is not trying to submit claims for the new spouse from before the marriage...most of the expenses are actually OTC. The question is does the benefit itself cover the participant retroactively even with a prospective election change? My instinct and I believe some backup (changes must be on a prospective basis) indicate that he should only be reimbursed for the expenses incurred after the election change and not those incurred before but it was an interesting question and I wanted to get input from anyone here who has any thoughts.

[papogi]

Your thinking is correct. Change is prospective only, so those old charges should not be reimbursed.

[oriecat]

I had the same question a couple years ago, except the change was a birth instead of a marriage. I asked my TPA and they agreed that it should not qualify, but they said their system has no way of actually tracking that, so it would get paid anyway.

[papogi]

I work at a TPA, and I know our system has no automatic way to track that, either. The analysts have to make notes in the system. We use standardized language in the notes for cases such as this (for such and such dates of service, employee has such and such dollar amount, for next such and such dates, employee has this dollar amount). It ends up being a manual process, but it follows what I believe to be the IRS' intent.

[J Simmons]

Several systems can be managed in a way to effect compliance by setting up a second health flex account for the employee at the time of the change, and coding it in the system with that date as you would a mid-year entrant choosing a health flex account so that pre-account expenses are not eligible for reimbursement.