2020 Brought a Lot of Change to Consumer-Directed Health Care
Posted on Thursday, February 4, 2021 by Kent Rausch
In a beautiful recitation recently, youth poet laureate Amanda Gorman said, “…for while we have our eyes on the future, history has its eyes on us.”
And that surely sums up how many of us are navigating each day. Possibly a little tired of living through history but also working to feel hopeful for what’s next.
One of the benefits sectors that we were keeping our eyes on was consumer-directed healthcare (or as we say here at Businessolver, “consumer accounts”). Knowing that the changes were coming fast and furious, here’s a recap of the changes as well as what decisions might still be in your court to make…and communicate.
Consumer Accounts Updates in 2020
Spring 2020 News
March 2020 – The CARES Act (Coronasvirus Aid, Relief and Economic Security Act) and related IRS guidance in late March was a swift response from the federal government to begin addressing COVID relief.
Over-the-counter medications and treatments and feminine hygiene items were added to the permanent eligible expenses list for HSAs (health savings accounts), FSAs (flexible spending accounts) and medical HRAs (health reimbursement arrangements). These items were retrospective to all of 2020, so purchases could be claimed/reimbursed back to 1/1/20.
Allowing telehealth services to be allowed pre-deductible without impacting HSA eligibility.
Mid-year 2020 News
The IRS pushed back tax filing deadlines in 2020, allowing individuals to continue making “2019” contributions to their HSAs until the deadline of July 15, 2020, or their filing date, whichever was first.
HSA limitswere announced in May, per usual, with the expected increase for 2021 plans raised to $3,600 for individuals and $7,200 for family coverage, with the 55 and up catch-contribution staying steady at $1,000.
The IRS issued 2020-only guidance in May allowing employees to make changes to their enrollments for both healthcare flexible spending accounts and dependent care flexible spending accounts (DCFSAs). Employers had the opportunity to open that enrollment window to allow employees to elect, cease, increase or decrease their 2020 elections based on their needs, moving forward from the date of change.
Also, in May the IRS increased the annual carry over amount for FSAs from $500 to $550/year for the plan year beginning 2021.
IRS Notice 20-33 allowed reimbursements from an invidivual coverage HRA (ICHRA) to reimburse a substantiated premium for health coverage incurred before 1/1/20 if the reimbursement covered a January 2020 premium.
End-of-Year 2020 Consumer Accounts News
The IRS issued guidance in November that the maximum allowable elections for 2021 healthcare FSAs, dependent care FSAs and commuter accounts would remain the same as the 2020 maximums.
There was a lot of buzz around what to do about commuter accounts and dependent care FSAs, as months went by without any clear federal guidance. Legislators were proposing changes to the IRS code, particularly for dependent care accounts, as families faced multiple months without care options, and many employers did not offer the extended election change window.
Finally, on December 27, 2020, the President signed the Consolidated Appropriations Act*, which in part allowed for healthcare FSA and dependent care FSA provisions—effectively extending the time frame and increasing the carry over amounts for spending 2020 funds into 2021. This relief applies to BOTH healthcare and dependent care FSAs. Dependent care FSAs were previously not subject to carry over amounts. More coverage on these provisions are here.
Parents with children aging out of the DCFSA eligibility are also able to extend that eligibility by one year and cover expenses for dependents who reached age 13 during 2020. These individuals may now have their otherwise eligible expenses covered through age 14.
*The Consolidated Appropriations Act of 2021 can be found here. FSA relief information begins on page 2484 of the bill (also page 4951 of the PDF document) in Section 214.
Employers who offer consumer accounts should take a few steps if you haven’t already. Here’s a deep dive into these considerations.
Review the expected forfeiture amounts for employees with FSA and DCFSA elections
Determine whether to allow the relief provisions for the extended grace period and increased carry over amounts into 2021 and 2022.
Determine whether you will extend an enrollment window for employees to elect these benefits (assuming you are outside of your regular enrollment period).
Reach out to your administrator to amend your organization’s plan design in order to take advantage of the extended grace period or increased carry over amount through 2021 or 2022.
If you still have participants in your commuter benefits program who are working remotely, encourage them to reconsider active contributions. Their funds will not expire, but they also will not continue to accrue funds that they aren’t using. Commuter benefits are meant to be used monthly, and are not portable if the employee terms their employment.
Most HSA plan designs allow enrollment throughout the year. Be sure to remind employees that they can enroll and contribute to an HSA to help them with unexpected medical expenses or big-ticket items like orthodontics and elective surgery.
Continuing to communicate is key
Communicate these extensions/increases to your eligible employees and help them understand the implications on their 2021 medical expense and dependent care spending. In yet another year of relative uncertainty, these consumer accounts can provide greater financial wellness. Join us next weekfor the second installment in this series – What’s in Store for Consumer Accounts in 2021?
For more information on Businessolver’s proprietary and integrated consumer accounts administration, check out our solution for streamlining your administration.