IRS to Permit Mid-Year Health Plan Changes

May 13, 2020

As part of the Federal Government’s ongoing response to the COVID-19 pandemic, the IRS issued Notice 2020-29. This notice modifies the rules for mid-year elections in employer-sponsored health plans and health flexible spending accounts (FSA) in cafeteria plans.

As a general rule, employee elections for such arrangements must occur prior to the beginning of the benefit year and can only be changed as a result of a qualifying life event. The notice now allows for mid-year changes in 2020 that do not fit the strict definition of a qualifying life event.

Employees can now reevaluate their healthcare coverage choices made prior to the beginning of the year. They can now opt in or out (assuming they have other coverage) of employer-sponsored coverage or even change the coverage they initially selected.

Along with the healthcare coverage changes, employees will also be able to modify their previous cafeteria plan health flexible spending account election. Employees can either increase or decrease their previously elected contribution amount.

The IRS also released Notice 2020-23, which increases the FSA amount that can be carried over from one year to the next from $500 to $550.

These changes are not mandatory and can implemented at the election of the employer.

If you have questions about Notice 2020-23 or Notice 2020-29, please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301.231.6257.