IRS outlines changes to health care spending available under CARES Act

IR-2020-122, June 17, 2020

WASHINGTON – The Internal Revenue Service has advised that new rules under the CARES Act provide flexibility for health care spending that may be helpful in the current environment where more people may need at-home services due to measures to fight the coronavirus.

Telehealth and High Deductible Health Plans

Under the CARES Act, a high deductible health plan (HDHP) temporarily can cover telehealth and other remote care services without a deductible, or with a deductible below the minimum annual deductible otherwise required by law. Telehealth and other remote care services also are temporarily included as categories of coverage that are disregarded for the purpose of determining whether an individual who has other health plan coverage in addition to an HDHP is an eligible individual who may make tax-favored contributions to his or her HSA. Thus, an otherwise eligible individual with coverage under an HDHP may still contribute to an HSA despite receiving coverage for telehealth and other remote care services before satisfying the HDHP deductible, or despite receiving coverage for these services outside the HDHP. The temporary rules under the CARES Act, as extended by IRS Notice 2020-29 (PDF), apply to services provided on or after Jan. 1, 2020, with respect to plan years beginning on or before Dec. 31, 2021.

Expansion of qualified medical expenses

The CARES Act also modifies the rules that apply to various tax-advantaged accounts (HSAs, Archer MSAs, Health FSAs, and HRAs) so that additional items are “qualified medical expenses” that may be reimbursed from those accounts. Specifically, the cost of menstrual care products is now reimbursable. These products are defined as tampons, pads, liners, cups, sponges or other similar products. In addition, over-the-counter products and medications are now reimbursable without a prescription. The new rules apply to amounts paid after Dec. 31, 2019. Taxpayers should save receipts of their purchases for their records and so that they are able to submit claims for reimbursements.

More information

The IRS will provide any further updates as soon as they are available on its webpage at IRS.gov/coronavirus.


IRS Announces PCORI Fee Update

The IRS has released Notice 2020-44, providing some much-needed information regarding PCORI fees for self-funded plans ending between October 1, 2019 and September 30, 2020.

The fee will be $2.54 per covered life, up from $2.45.

The fee is still due on 7/31 and the updated form 720 is expected to be published today, Wednesday June 10th.


IRS Releases 2021 Limits for HSAs

 The IRS released Revenue Procedure 2020-32 which provides the 2021 inflation-adjusted amounts for high deductible health plans (HPHPs) Health Savings Accounts.

The amounts for HSAs for 2021 as compared to 2020 are as follows:
 

  2020 2021
Annual Contribution Maximum – Self-Only   
$3,550
 
$3,600
Annual Contribution Maximum– Family  
$7,100
 
$7,200
HDHP – self-only coverage
  • Minimum Deductible:
  • Maximum Out-Of-Pocket:
 
 
$1,400
 
 
$1,400*
 
 
$6,900
 
 
$7,000
HDHP – family coverage
  • Minimum Deductible:
  • Maximum Out-Of-Pocket:
 
 
$2,800
 
 
$2,800*
 
 
$13,800
 
 
$14,000

*No change in 2021


IRS provides Cafeteria Plan Flexibility to Employers

The IRS issued two notices (2020-292020-33) yesterday, increasing election and reimbursement flexibility for employer-sponsored health plan elections, Healthcare Flexible Spending Accounts (FSA), Dependent Care Accounts (DCA), Health Savings Accounts (HSA), and Individual Coverage Health Reimbursement Arrangements (ICHRA).  
 
Additionally, the IRS has increased the amount of the maximum Carryover from $500 to $550 for plan years beginning on or after 1/1/2020.
 
The new rules allow for an employer to amend their plan to permit employees to make the following changes:
 
Employer-Sponsored Health Coverage:
  • make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage; 
  • revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; and 
  • revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer; 
  • these changes require an employer to amend their plan prior to any election changes.
 
FSA & DCA (on a prospective basis)
  • revoke an election, 
  • make a new election, or 
  • decrease or increase an existing election 
  • for a plan year ending during 2020, the plan may extend the grace period through December 31, 2020. This allowance is for plans with both Carryover and Grace Period, and essentially extends a plan year ending during 2020 through the end of 2020 for claims purposes.
  • Carryover Maximum for plans beginning on or after January 1, 2020 has been increased from $500 to $550
  • Allow for retroactive coverage during the plan year for a health FSA. 
  • Explanation: If an employee takes advantage of a mid-year election, their contributions can only be made from the election point forward, however their reimbursements can be made for any date in the plan year.   
  • Example: An employee making a mid-year election on 5/15 into an FSA with January 1, 2020 effective date would be able to submit a claim incurred as early as January 1, 2020 for reimbursement.  
  • Prior to this notice, the employee would not be eligible for any reimbursements on expenses incurred prior to their enrollment into the plan. This allowance begins with plan years starting on or after January 1, 2020.
 
HSA
  • The relief provided in notice 2020-15 exempting Telehealth from being disqualifying care under an HDHP has been applied retroactively to January 1, 2020.
 
ICHRA
  • Clarifies that a premium payment for a period during the plan year that is paid prior to the plan year can be reimbursed.  If the January premium is paid in December, for an ICHRA beginning in January, the plan may reimburse the expense.
 
Employers must choose to amend their plan to offer this flexibility to their employees.

ERISA Updates due to COVID-19

As a result of the FFCRA and the CARES Acts, there have been significant changes to ERISA benefit plans. Whether or not you are a customer of ours for ERISA document preparation, you should update your document to include these new provisions.
 
These changes include:
  • Inclusion of over-the-counter and menstrual care items in Healthcare FSAs
  • Continuation of coverage for employees taking applicable leave
  • Potential changes to eligibility for benefits during the outbreak period.
 
Linked below is a sample Summary of Material Modifications (SMM) for your Health and Welfare Benefits plan. The first page is some overall insight, and there are drafting instructions in red on the second page.
 
Simply edit the second page to fit your plan details, and save a copy with you Plan Document. Provide a copy of the SMM to your participants, and you’re done.
 
 
Feel free to reach out with any questions you may have.
 

Miss our webinar on the COVID-19 extensions for COBRA, HIPAA, and more? Video & Handouts inside!

On 4/28, the tri-agencies (HHS, DOL, and IRS) released new mandatory guidance in the form of a final rule instructing plans subject to ERISA and the Internal Revenue Code to disregard the “Outbreak Period” when calculating certain deadlines.

We’ve posted the full webinar here for your review, and the slides and federal regulations are available below as well.

COVID-19 Extension Regulations – Federal Register

COVID-19 Extension Slide Deck

 


Can I change my election?

***New IRS Guidance has allowed for Employers to offer more flexibility than below. While the rules posted below still apply unless employers take action, more opportunities for election changes now exist.  Learn more here.***

With all the changes due to COVID-19, may employees are asking if they can change their pre-tax benefits elections.  We’ll address each benefit for employees who are still actively employed and working the minimum number of hours for plan eligibility:

Commuter Benefits

Short answer: Yes.

Long Answer:

Commuter benefits elections can be changed at any point on a prospective basis.  Since Commuter benefits can only be used to pay for expenses to commute to and from work, if your employees are working from home, there are no commuting expenses to reimburse. In this case, employees should consider pausing or reducing their contributions. If an employee is terminated, any funds remaining in the account after any run-out claims are processed are forfeited.

Dependent Care

Short Answer: Yes

Long Answer:

Dependent Care expenses are similar to Commuter benefits, in that they are very likely reduced during this period.  The IRS allows for a prospective election change based on a change in the cost of care.  If an employee’s circumstances reflect a change in the cost of care, they can and should consider changing their election to avoid an over-contribution.  If an employee is terminated, any funds remaining in the account after any run-out claims are processed are forfeited.

Flexible Spending Accounts

Short Answer: No

Long Answer:

If an employee remains eligible for the FSA, their FSA contributions and expenses remain the same as they were before the COVID-19 outbreak. There is nothing in the regulations that would allow a change as a result of working from home.  If the employee is no longer eligible for the FSA due to a reduction in hours or termination, they would be subject to FSA COBRA.

An FSA is subject to COBRA if the group is subject to COBRA, and if, at the time of termination, the employee has contributed more than they’ve spent.  If that is the case, they can continue the plan with their full maximum election through the end of the plan year as long as they elect COBRA continuation and make their regular contribution as a COBRA premium equivalent.  If the employee has spent more than they have contributed at the time of termination, there is no continuation afforded.

Health Reimbursement Arrangements

Short Answer: No

Long Answer:

HRAs are not subject to state continuation, but they are subject to COBRA as a self-funded health plan.  While COBRA sets the floor of the minimum benefits that must be offered to qualified beneficiaries, employers can provide more generous continuation, even if the employer is not subject to

Health Savings Account Pre-Tax Contributions

Short Answer: Yes

Long Answer:

Employees can change their HSA contributions on a prospective basis at any time for any reason.


COVID-19 Scenarios and Benefits Available (Quick Reference Chart)




OTC and Menstrual Care products are now FSA-Eligible (Infographic)

The CARES Act reversed the provision of the Affordable Care Act that prohibited the purchase of Over-the-Counter (OTC) medicine with an FSA.  As of January 1, 2020, OTC can be purchased with your FSA.  Additionally, the CARES Act included language that allows for Menstrual Care Products to be purchased with an FSA.

While the products are eligible retroactively to January 1st, it does take some time for merchant updates.  With that, we expect that the cards will begin to work with these recent additions as early as this week. If you have an issue using your card paying for OTC or menstrual care products, just submit a claim for a manual reimbursement through our Participant Portal, by email with the Medical Claim Form, or via our mobile application – just search your app store for “gente FSA”.

Our friends at the FSA Store have put together this helpful infographic, as well as a CARES Act information page.  As always, they maintain the best eligibility list on the web, which you can find on our site, or theirs.

OTC and Menstrual Care Infographic


FFCRA: Updated Guidelines and FAQs for Paid Leave Credits to Employers

The IRS has provided helpful insight and answers to employer questions on how to take advantage of the paid leave credits made available in the Families First Coronavirus Relief Act.

COVID-19 Related Tax Credits for Paid Leave Provided by Small and Midsize Businesses.