FSA election changes due to state mandated benefit change.

[Guest Lisa Scott]

May an employer allow Health FSA elections to be modified mid plan year if they are required to comply with a new (less generous) plan design through state mandates, after moving to a new location mid-year?

[KIP KRAUS]

That's interesting. When does a state ever mandate less benefits? Do you know of a specific one?

[Guest Lisa Scott]

The company has moved to a state where the plan design has a higher deductible and copays for certain services. The new plan design is one offered by the carrier in that particular state. Really, it is the carrier not the state adjusting the benefits. My understanding is that no revision to FSA health elections is allowed under the code. Even, if this is slightly inconvenient to employees and causes additional out-of-pocket expenses which were not considered when they elected FSA this year.

[KIP KRAUS]

It might be time to look for another insurer. Unless you are a really small gruop, say under 100 covered employees I'd think you could get a carrier with a more flexable benfits design. On the other hand, I know that insurers who insure small groups sometimes have to file their plan designs with the state and don't have the flexability to vary from those filed plan designs.

[Lisa Hand]

In response to the question, a change in cost or coverage is not a valid change of status event for changes to the Medical FSA.

(Final Tres. Regs on Change of Status issued January 11, 2001)

[Guest Lisa Scott]

Thanks for the confirmation, Lisa. This was my understanding as well, but I didn't want to overlook anything.