![handle is hein.crs/govdcyw0001 and id is 1 raw text is:
FF.ri E~$~ &
June 15, 2020
Potential COVID-19 Impacts on Health Flexible Spending
Arrangements (FSAs) and Recent Health FSA Changes
Health flexible spending arrangements (FSAs) are an
optional benefit employers may offer that allow their
employees to set aside money, on a tax-advantaged basis, to
pay for certain out-of-pocket medical expenses. The rules
of such arrangements may affect an individual's ability to
use or modify their FSA in light of the Coronavirus Disease
2019 (COVID- 19) pandemic and corresponding recession.
This product provides a brief overview of health FSAs and
some potential ways that the COVID-19 pandemic may
affect individuals with such arrangements. It concludes with
a description of recent COVID- 19-related executive branch
and congressional activity around health FSAs.
Health FSAs are one type of health-related, tax-advantaged
account/arrangement and are one type of flexible spending
arrangement. As such, some health FSA rules are different
than the rules for other health-related tax-advantaged
accounts/arrangements (e.g., health savings accounts
[HSAs]) and other FSA types (e.g., dependent care FSA).
H'easkh FSA,
Health FSAs are generally offered by employers through a
cafeteria plan, which allows employees to reduce their
taxable salary and instead put such money, pre-tax, toward
a qualified benefit. Participation in a health FSA is tied to a
set period of time (plan year), which generally lasts 12
months and does not need to follow the calendar year. Plan
years are associated with the year in which the plan starts
(e.g., a health FSA with a plan year that begins in July 2020
follows 2020 health FSA rules).
When FSAs are funded through a cafeteria plan, employees
elect an annual amount to contribute to their FSA prior to
the start of a plan year, which generally cannot be changed
during the plan year except for limited circumstances (e.g.,
change in family status). The employee then contributes
amounts to the FSA over the course of the plan year that
would total to the elected amount. The maximum amount
that an employee can contribute to a health FSA is $2,750
in 2020. Employers may also provide limited contributions.
The total health FSA election amount must be made
available to employees at the start of the plan year, even
though the contributions are typically spread throughout the
year. For example, an employee who elects to contribute
$2,400 to his/her health FSA for a given plan year ($200 a
month) would be able to access all $2,400 on the first day
of the plan year (even if he/she has only contributed $200).
Employees can generally only use health FSAs to reimburse
the qualifying medical expenses of the employee, his/her
spouse and dependents, and his/her children younger than
27 at the end of the tax year. Qualified medical expenses
generally include amounts paid for the diagnosis, cure,
mitigation, treatment, or prevention of disease, or for the
purpose of affecting any structure or function of the body,
as well as certain transportation and lodging expenditures.
They do not include health insurance premiums, long-term
care insurance premiums or expenses, amounts covered
under another health plan, and expenses for any medical
care that the employer has precluded from reimbursement.
When offered as a cafeteria plan benefit, health FSAs are
generally subject to cafeteria plan rules. One such rule is a
use-or-lose rule that prevents any cafeteria plan benefit
from providing deferred compensation. As such, health
FSA plans have only a limited ability to permit unused
health FSA balances to be used after the end of the plan
year. In general, employers must incorporate one of three
mutually exclusive policies for the treatment of an
employee's unused health FSA balances at plan year's end:
1. employees forfeit unused balances;
2. employees have a grace period for
additional claims of up to 212 months
after the end of the plan year (e.g.,
medical expenses incurred by March 15,
2021, could be reimbursed from FSA
contributions from a January-December
2020 plan year); or
3. employees may carry-over a limited
amount of unused health FSA funds into
the next FSA plan year (up to $500 in
2019 plan year contributions and $550 in
2020 plan year contributions).
To the extent that an individual has a health FSA balance
after the end of the grace period or has a balance that
exceeds the allowable carry-over amount (where
applicable), such amounts are forfeited to the employer.
Since health FSAs are generally only available to current
employees of employers offering such benefit, if an
employee is terminated, they may forfeit their FSA balance.
In some instances, individuals may be able to retain access
to their health FSA through Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA) continuation
coverage. Inversely, if an employee is terminated mid-plan
year having withdrawn more money than contributed, they
generally cannot be charged for the negative balance.
Pcx,, t en, a ,,,---,-- I, - 9 1 ............
As designed, health FSAs provide limited ways that
individuals can account for unexpected medical costs or
changes in medical care availability. Individuals determine
.O 'T
p\w -- , gnom goo
mppm qq\
a , q
'S I
11LULANJILiN,](ViewImageLocal?handle=hein.crs/govdcyw0001&div=1&collection=&method=preview&ext=.png&size=3)
What Is HeinOnline?
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most