COVID-19 relief for health plans and participants: Employers and employees get mid-year break on cafeteria plan changes and COBRA deadlines

The IRS recently issued Notice 2020-29, allowing §125 cafeteria plans and high-deductible health plan (HDHP) changes during the remainder of 2020. Plans may allow:

• Enrollment changes. Employees who declined employer-sponsored health coverage at the beginning of the plan year may now elect to enroll. Employees enrolled in employer coverage can switch to different coverage offered by the same employer. Employees can disenroll from employer coverage in order to enroll in other coverage immediately.
• FSA elections. Employees can revoke, change or make a new election regarding prospective health or dependent care FSA deductions.
• FSA grace period or carryover and date expense incurred. For unused amounts in any type of FSAs, the employer may allow grace periods. Plan years ending in 2020 may be extended through December 31, 2020. Likewise, such amounts may be used for medical expenses incurred in 2020.
• IRS Notice 2020-33. Related to carryovers, Notice 2020-33 increases the limit for unused health FSA carryover amounts from $500 to a maximum of $550, adjusted annually for inflation.
• COVID-19 exemptions for HDHPs. HDHPs may cover COVID-19-related expenses and telehealth services retroactively to January 1, 2020.

Consider what these amendments could mean to your employees and your operational costs before rubber-stamping them in a two-minute phone call with your administrator. Employers may choose to implement or customize this relief. The employer can determine the period during which employees may change elections, specify which election changes are available and limit FSA elections to amounts no less than those already reimbursed during the year. Employers must amend plan documents by December 31, 2021. The amendment may be retroactively effective to January 1, 2020, if the plan operates consistently with this notice and/or Notice 2020-33 and the employer informs all eligible employees of the changes.

Plans must ignore COBRA election and payment deadlines from March 1, 2020, through...?
Normally, administrators have 14 days to provide COBRA election notices after it is notified of a qualifying event. COBRA qualified beneficiaries have 60 days from the later of their qualifying event or notice of COBRA eligibility to make an election, as well as 45 days after the election to make the first payment (and typically monthly thereafter). On May 4, 2020, The Department of Labor (DOL) and Department of Treasury issued a Joint Notice that requires group health plans subject to COBRA to disregard the COBRA deadlines during March 1, 2020, through a future date that is 60 days after the end of the national emergency (the “outbreak period”).

The extension grants qualifying individuals significantly more time to determine if they need coverage retroactively to the date they lost coverage and pay for it. Qualified beneficiaries who had high claims are likely to enroll because the retroactive premiums will be a bargain compared to the medical bills.

However, administrative headaches might be unavoidable. Plans will experience a degree of limbo regarding claims for individuals who might still elect COBRA with significant retroactive effective dates and premiums. Employers should talk to their administrators to remain clear on how beneficiaries will be tracked and how claims will be handled.

The DOL released updated model COBRA notice and FAQs on May 1, 2020.