Employers embracing mid-year health plan changes after IRS guidance
About half of employers say they will allow some type of mid-year health plan change—per new IRS guidance allowing them to do so because of coronavirus—though few are enabling employees to make changes to their core medical plans.
A new survey of 279 employers from consulting firm Mercer finds that 47% of employers surveyed indicate they will allow some type of mid-year change, with the most popular being changing contributions to a dependent care flexible spending account (43%) and letting employees change contributions to a healthcare FSA (29%). Fewer employers are planning to allow changes to medical plan elections, such as switching to a different medical plan (allowed by 8% of employers); enrolling in a plan after having waived coverage (11%); or adding a dependent (10%).
Still, just over half of employers say they aren’t considering opening their plans for any mid-year changes.
The IRS said in May it’s giving employers permission to let employees make changes to their health insurance plans because of uncertainties caused by the COVID-19 pandemic. Normally, employees cannot change health coverage options unless it’s open enrollment—or they experience a qualifying life event, such as marriage, divorce or the birth of a child. The new guidance allows employees to drop out of their health insurance if they have another option, or sign up for insurance if they have not done so; add family members to their plan; or switch to a different health insurance plan.
The IRS guidance also eases healthcare flexible spending account and dependent care account rules, allowing employees to also make changes to those accounts mid-year.
However, the policy change doesn’t require employers to offer these options; they must opt in if they want to give their employees added flexibility.
Although some industry insiders didn’t know if employers would rush to offer the options—such changes can be an administrative headache some companies may want to avoid—Mercer’s findings show a significant number of employers have already taken action, especially when it comes to FSAs and dependent care changes.
Jay Savan, a partner in Mercer’s health business, says allowing employees to change contributions to dependent care or health FSAs, for example, “can be a relatively simple way for employers to support employees coping with COVID-19-related issues.”
“Maybe a child’s summer camp is closed, someone canceled some planned dental work or a spouse is out of work and the employee just needs more money in their paycheck,” he says.
Savan says that, while there is very little downside in allowing dependent care FSA changes, employers should be mindful that there are some potential risks associated with allowing changes to health FSAs. These include immediate employee access to full account limits during a time when employers are hyper-focused on conserving cash, as well as the potential for employees to accelerate their use of health FSA funds and leave the plan in a deficit if they discontinue employment.
Meanwhile, permitting enrollment changes mid-year in core medical plans is a much less popular option for employers. Savan says that’s because those changes bring with them “much greater risk to the sponsor, such as incurring high cost claims and generally enabling adverse selection.”
“It can also have collateral impact on stop-loss reinsurance and other related contracts,” he says. “Our advice to employers is to weigh these risks thoughtfully before liberalizing the terms of mid-year enrollment in medical plans in 2020.”