• Navigating Workplace Vaccine Mandates, Vaccine Hesitancy, and Employer Responsibilities [Video]

    As employees begin returning to the workplace, how can employers keep their employees safe, accommodate their concerns, and minimize liability? What are the challenges and risks of instituting a vaccine mandate? Join Jeanine DeBacker, employment law attorney at McPharlin Sprinkles & Thomas LLP, and Brie Linkenhoker, PhD and Founder of Worldview Studio, as they provide guidance and clarity on these questions and others. We address several topics, including:

    • Vaccine mandates
    • Privacy issues
    • Accommodation requests
    • Masking protocols
    • Employee education resources

    Note: The content of this presentation is not to be considered legal advice. We recommend Clients speak with legal counsel specializing in labor and employment law to ensure your organization meets requirements.

    Additional Resources

    Employer Action Plans

    COVID-19 Vaccine Education

    Model Mandatory/Voluntary Vaccine Policy Memo to Employees

    Mandatory Vaccination Option

    Subject: Mandatory Vaccination Policy

    [Company name] has implemented a mandatory vaccination policy effective [date] requiring [disease name(s)] vaccination(s) for all employees. In accordance with [Company name]'s duty to provide and maintain a workplace that is free of known hazards, we are adopting this policy to safeguard the health of our employees and their families, our customers and visitors, and the community at large from infectious diseases that may be reduced by vaccinations. In making this decision, the executive leadership team reviewed recommendations from [insert department names or other organizations consulted such as the Centers for Disease Control and Prevention, the Advisory Committee on Immunization Practices and local health officials].

    All employees must receive the vaccination no later than [date]. Individuals seeking an exemption from this requirement for medical or religious reasons should complete a request for accommodation form and submit the form to the human resources department.

    Vaccinations will be administered by [insert details regarding who will provide the vaccine and where employees must go to receive the vaccine].

    [Company Name] will pay for all vaccinations and the time spent receiving the vaccinations.

    Should you have any questions regarding this new policy, please contact [name and contact information].

    Voluntary Vaccination Option

    Subject: Voluntary Vaccination Policy

    [Company name] is implementing a voluntary vaccination policy effective [date] regarding [disease name(s)] vaccination(s) for employees. In accordance with [Company name]'s duty to provide and maintain a workplace that is free of known hazards, we strongly encourage employees to receive this vaccination to minimize the risk of infectious disease in our workplace. In making this decision, the executive leadership team reviewed recommendations from [insert department names or other organizations consulted such as the Centers for Disease Control and Prevention, the Advisory Committee on Immunization Practices and local health officials].

    Employees may obtain the vaccination wherever they choose; however, [Company name] is facilitating vaccinations through [insert details regarding who will provide the vaccine and where employees can go to receive the vaccine]. [Company Name] will pay for all vaccinations and the time spent receiving the vaccinations.

    Should you have any questions regarding this new policy, please contact [name and contact information].

  • Washington State New Long-Term Care Trust Tax

    Starting January 1, 2022, employees who work in the state of Washington will pay a mandatory 0.58% payroll tax on all W-2 income with no cap. This tax will fund a state-run long-term care insurance program which can provide up to a maximum of $36,500 of long-term care benefits for care provided in the state. This equates to a daily benefit of $100 per day for one year. There is a provision to increase the benefit. However, benefit increases will track with the Washington CPI. The tax will increase as income increases since there is no cap to the tax.

    Eligibility Details

    To be eligible for benefits, employees must have paid into the system for three years within the past six years or for a total of 10 years with at least five of those years paid without interruption. Benefits can only be received if you reside in Washington state.

    Opt Out Option

    Employees can opt out of this tax permanently if a) they own their own long-term care insurance policy, and b) if they can attest that the plan provides benefits equal to or better than the state program. The long-term care insurance must be in place by November 1, 2021. This attestation must be submitted to the state’s Employment Security Department between October 1, 2021 and December 31, 2022.

    Who Should Consider a Private LTC Policy?

    Arguably, there are three groups of employees who may benefit from considering a private long-term care insurance policy:

    1. Employees who earn $300,000 or more in annual compensation. Most employees in this income bracket can find a policy that is more cost effective than the payroll tax.
    2. Employees who plan to move out of the state of Washington when they retire because they will forfeit the benefit.
    3. Employees who plan to retire in the next few years since they will not have vested benefits through the state.

    Employer Action

    If you have employees in Washington and would like to consider a long-term care benefit, provide a resource for employees, or explore an executive carve-out, please reach out to your Vita Account Manager. We will do an assessment to confirm the best options and course of action.

  • 2022 Health Savings Account (HSA) Limits Announced

    The Internal Revenue Service has announced the 2022 dollar limitations for Health Savings Accounts as well as underlying qualifying High Deductible Health Plans. The maximum HSA contribution and out of pocket maximum limits saw increases at both the family and individual levels.

    High Deductible Health Plan Policy Limits

      2021 2022
    Minimum Deductible Individual   $1,400 $1,400
      Family $2,800 $2,800
    Maximum Out of Pocket Limit Individual  $7,000 $7,050
      Family $14,000 $14,100


    Health Savings Account Limits

        2021 2022
    Maximum HSA Contribution Individual   $3,600   $3,650
      Family $7,200 $7,300
    Over Age 55 Catch-Up Contribution   $1,000  $1,000


    High Deductible Health Plan Policy Limits

    Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan. The HSA contribution rules assume that you will be enrolled on a high deductible health plan for 12 consecutive months.

    Embedded Deductibles on an HSA-Qualified HDHP

    Many qualified high deductible health plans have an aggregate family deductible, so that if an employee covers any dependents on the plan, the family deductible applies and the individual deductible is not taken into consideration. However, there are some plans that have an embedded individual deductible such that if one member of the family meets the embedded individual deductible, then the plan coinsurance would start to pay once that individual deductible is met. In order for such a plan to be a qualified HDHP, the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, these types of plans would need to have an embedded individual deductible of $2,800 to remain HSA qualified in 2022.

  • Blue Cross Blue Shield Class Action Lawsuit

    Blue Cross and Blue Shield companies reached an agreement on October 30, 2020 to settle a legal dispute challenging elements of Blue Cross Blue Shield Association licensing agreements. After eight years of litigation, the Blue Cross Blue Shield Association did not admit fault, but they did agree to a settlement to end litigation. In the settlement, BCBS agreed to make operational changes as well as to provide payment to members of the class involved in the case. The settlement agreement amount is $2.67 billion. This is a very significant settlement amount and has garnered the attention of many employers, individuals, and attorneys.

    Who are potential class members?

    Potential members of the class include the following groups to the extent they were covered by a BCBS health policy during the covered period:

    • Individuals and insured group health plans between February 8, 2008 and October 16, 2020.
    • Self-funded plans between September 1, 2015 and October 16, 2020.

    What do Employers Need to Do? 

    Potential Class Members will receive a formal notification via mail or email. In addition to your notification as an employer, many of your employees will also receive notification directly. Although you are not obligated to notify employees of the settlement, we understand the direct communication from the Claim Administrator to employees is likely to spark many questions back to HR. 

    Vita drafted sample communication you may choose to send to your employees about the settlement; please reach out to your Vita account manager or click “Contact Us” on our website if you have any questions or if you did not receive a copy of the sample employee-facing communication.  

    It is also possible to opt into the lawsuit as a member via the link on the settlement website (www.BCBSsettlement.com). (Link) www.BCBSsettlement.com 

    What do Employees need to do?

    Employees who were covered under your health plan will be receiving notification of the settlement and of their option to file a claim directly.  If employees wish to file a claim, they can do so on the official settlement website or via mail. Although the online claim form has many optional fields, the following are the only required fields:  

    • Personal identifying information (name and contact details) 
    • Health plan name selected from a dropdown menu 
    • Employer name for the group policy 
    • Payment elections and review/signature 

    Importantly, the detailed policy information, coverage date information, and premium allocation does not need to be completed.   

    Sharing the Settlement with Employees

    If an employer group health plan receives a settlement amount, will it be necessary to share the proceeds of the settlement with employees? According to the settlement site’s FAQ (#35), no. Since employees are eligible to participate in the settlement directly and receive a payment for their estimated portion of premiums, employers can retain any settlement they receive if they choose to file a claim. 

    Realistically, how much might we get?

    This is the key question that everyone is asking. And the answer is that it is VERY difficult to tell because it is based on the number of respondents that join the lawsuit as class members. But, in the interest of trying to apply some measure of thought to the otherwise completely unknown equation, we share some “back of the napkin” thoughts . . . with the understanding that no one has ANY real idea and that these numbers may be completely off base.

    General Calculations

    • 158,000,000: People covered by Employer sponsored plans. This rough analysis does not include individual plans or ASO plans. (Source: Kaiser Family Foundation)
    • 52,666,667: People covered by a BCBS plan (1 in 3)
    • $2,677,000,000: Total settlement amount
    • $1,900,000,000: Expected approximate distributable settlement (those who submit a valid, timely claim)
    • $146,154,000: Approximate award per year of coverage (13 years)
    • $2.78: Total award per year / Total people covered per year*

    *Assuming all group health plan claimants file, but not considering individual plans or ASO contracts. Adding these elements would further reduce the total award per year per person covered.

    Example Application to Employer Plan

    • 100: Employees
    • $278: For employer per year
    • 5: Years of coverage
    • $1,387: Potential total award

    Dilute for Employee Contributions

    • If employees contributed to health plan via contributions, settlement proceeds would need to be passed through to plan participants.

    Enhance If Less Than 100% of Claimants Join Lawsuit

    • Unweighted average claimants per class action suit = 21%
    • Unweighted medium claimants per class action suit = 8%
    • However, most potential class members in class action lawsuits are simply just letter or postcard. This suit is a very high profile one with lots of media coverage. Also, the bulk is employer based, so single employers will be collecting for groups of employees. Add to that the reality that essentially all large plans with significant potential settlements will certainly file, thus bringing up the both the average and the medium numbers. Thus, it is expected that a significantly higher than average number of claimants will file. This means that the potential award per employee per year will likely remain low (because we can assume that essentially all large stakeholders will join).
    Once again, these are very rough numbers . . . the roughest possible. It is also important to realize that the actual final settlements will most certainly be calculated based on actual premium volume, not on number of covered lives, so that adds an additional measure of variability to this rough analysis. That said, we wanted to put out at least some measure of number-thought to provide context on the $2.67 billion total settlement number.


    Do I need an Attorney or a Firm for Representation?

    Be aware that there are a number of law firms that are reaching out to potential members of the class and offering representation services with the promise of streamlining the process. Essentially all such firms offer their services on a no-up-front-cost, contingency basis. Some even offer advance payments of the estimated expected settlement distributions. The fee for this service is typically 20% of the settlement amount.

    It is important to be aware that you do not need to retain the services of such a law firm in order to receive a potential benefit. You can “go direct” (as most class members do) and simply register as a member of the Class Action group directly on the formal website.

    Important Dates

    While the formal notice materials outline full details about timing, following is a summary of key dates:

    • Spring 2021: Formal notices sent (Some employers have indicated already receiving their notifications)
    • July 28, 2021: Deadline to Opt Out of Class Action Suit
    • November 5, 2021: Deadline to file to participate in the Class Action Suit

    Tips for Filing a Claim

    If you receive a formal notification, look for the Unique ID. While it is not absolutely necessary, having the Unique ID will make it easier to file a claim.

    Postcard Notice looks like this:
    Postcard Notice

    Email Notice looks like this:
    Email Notice

    The online claim form has many optional fields for both employers and employees, which is likely to spark questions from your work force. For example, the following are optional fields: member ID, group #, coverage dates, and allocation of premiums. Employees will be able to submit their online claim form without this information.  

    Required fields include the Health Plan Name (selected from a drop-down menu) and Employer Name. Employers may wish to proactively provide this information to employees to mitigate the number of questions received from individuals.

    Formal References

    Formal resources for the class action lawsuit can be found below. The website includes Frequently Asked Questions, important reference documents, and a link to file a claim.

    BCBS Lawsuit: The Details

    The Litigation

    The litigation was particularly hard-fought and expensive, with the production of over 15 million pages of documents, over 120 depositions, and over a dozen motions to dismiss the plaintiffs’ claims. The unique nature of this anti-trust lawsuit has been characterized in court papers as “historic.”

    What Was Alleged?

    This lawsuit alleges violations of the antitrust laws by the Blue Cross Blue Shield Association of health plans. It purports that that BCBS companies colluded to create territories within the US, an act that would be in violation of antitrust laws. The claim was that this resulted in individuals, insured group health plans, and self-funded plans paying higher premium and ASO costs than they would in a competitive market.

    Nitty Gritty Anti-Competition Details

    In addition to the settlement payment of nearly $2.7 billion to the class plaintiffs, BCBS agreed to modification of alleged anticompetitive practices. Specifically, BCBS agreed to remove two of the mechanisms that are “pretty flatly anticompetitive” with regard to Blue plan subscribers. First, the agreement would remove a BCBS Association rule that requires two-thirds of each Blue insurer’s total national revenue to come from Blue-branded plans. Second, BCBS agreed to remove the existing setup that requires national employer subscribers to work with a Blue insurer that covers the location of the employer’s headquarters. This new agreement would allow competition between a smaller, in-state Blue insurer and other out-of-state Blue insurer for large national employers.

    Potential Marketplace Impact

    While the monetary settlement in this case is significant, equally so is the potential impact on health insurance markets going forward. It is clear that there will be greater competition among the various BCBS companies going forward. However, potentially equally significant is that the new BCBS competition will likely stimulate a competitive response from other national and regional health insurance companies.

  • Healthcare and Employee Benefits in the Biden Era [Video]

    With the ongoing global pandemic and a new administration, legislative priorities continue to shift and are causing confusion for many employers. Join James Slotnick, Sun Life’s AVP of Government Relations, as he discusses how these dynamics could impact the employee benefits industry. He covers:

    • Ongoing legislative response to COVID-19
    • How Congress has both advanced and hindered President Biden’s priorities
    • Which employee benefits issues are likely to be most impacted by the Biden Administration
    • How the 2022 mid-terms could change President Biden’s agenda

    Note: The content of this presentation is not to be considered legal advice. We recommend Clients speak with legal counsel specializing in labor and employment law to ensure your organization meets requirements.



  • PPE Now Eligible As Medical Expense

    The IRS released Announcement 2021-7 which newly includes amounts paid for Personal Protective Equipment (PPE) as qualified medical expenses.

    Which Types of PPE are eligible?

    PPE such as masks, hand sanitizer, and sanitizing wipes are now eligible. The announcement does specify that the primary purpose of the PPE must be to prevent the spread of COVID-19.

    Which Plans?

    Technically, PPE was added as qualified medical expenses under IRC §213. Practically, this means that they are eligible under health FSAs, HSAs, and HRAs (if the HRA is structured to allow expenses beyond copays, deductibles, etc.).

    Effective Date

    Plans can be amended retroactively to January 1, 2020. To the extent that plans do not need to be formally amended, claims for PPE expenses would be eligible retroactively as well.

    Plan Amendments

    The IRS notice outlines that plans (including health FSAs and HRAs) need to be amended if they specifically prohibit reimbursement of PPE. Vita Flex Summary Plan Descriptions (SPDs) reference IRC §213 for eligible expense determinations, so Vita Flex plans will not require a specific amendment. Other plan communication materials currently list PPE as not eligible, so those materials will simply be updated by Vita.

    If a non-Vita Flex plan would need to be formally amended, the amendment can be retroactive. Such an amendment must be adopted no later than December 31, 2022 (in most circumstances).

    Participant Communication

    Employers should communicate the change in PPE eligibility. The Vita Flex participant portal is being updated with a banner to reflect this change in eligibility.

    No Double Dipping on Tax Return

    If the expense is reimbursed under an account-based plan, it is not deductible for the taxpayer under Section 213 (to the extent that the total medical expenses exceed 7.5% of the taxpayer’s adjusted gross income). In other words, no double dipping on the deductible expenses.

  • 2021 Absence Management Updates and Trends [Video]

    COVID has dramatically changed the workplace. Continued changes and long-term impacts around employee rights to leave, accommodations and more are sure to affect our world. Join Marjory Robertson, Assistant Vice President & Senior Counsel at Sun Life Financial, as she discusses a variety of employment law and compliance requirements, and likely absence and accommodation-related developments during 2021 under a new federal administration. She covers issues raised under the ADA, OSHA, FMLA, FLSA and other federal and state laws.
    Note: The content of this presentation is not to be considered legal advice. We recommend Clients speak with legal counsel specializing in labor and employment law to ensure your organization meets requirements.



  • American Rescue Plan Act: What Employers Need to Know [Video]

    The American Rescue Plan Act of 2021 is a massive piece of legislation (591 pages long!) that includes a plethora of relief measures that impact nearly every segment of society, including several that affect employers and their employee benefit programs. View this on-demand presentation highlighting the key employer provisions, including the COBRA Subsidy and the Dependent Care Max Increase. We outline employers' required critical actions and discuss Vita's administration solutions.


    Employer Resources

  • American Rescue Plan Act of 2021: Key Employer Provisions

    President Biden signed the American Rescue Plan Act of 2021 into law on March 11. It provides $1.9 trillion in coronavirus relief. The bill itself is 591 pages long with a Table of Contents that is seven pages long! It includes a plethora of relief measures that impact nearly every segment of society. Importantly, there are also critical measures in the bill that impact employers and their employee benefit programs. Following is a summary that highlights the key provisions that affect employee benefit plans.

    COBRA Subsidies

    100% Subsidy: The bill provides a 100% premium subsidy for COBRA coverage from April 1, 2021 to September 30, 2021.

    Assistance-Eligible Individuals: Eligible individuals are those whose Qualifying Event was a termination of employment (other than for gross misconduct) or a reduction in hours. If the event is a Termination, it must be an involuntary termination of employment. Individuals must have active COBRA coverage (or be eligible to elect COBRA coverage) on or after April 1, 2021.

    Coverages Included: The law refers to “any premium” and does not make an expressed differentiation between medical plan coverage and other health plan coverages that are subject to COBRA. Therefore medical, dental, vision, and EAP premiums would be subsidizedFSA plans are not subsidized.

    Extended Election Period: A Qualified Beneficiary who previously did not elect COBRA or discontinued coverage, but who would otherwise be an assistance-eligible individual, is still eligible for the subsidy (assuming they are still within their maximum COBRA coverage period). These individuals must be given a 60-day election period which is measured from the later of April 1, 2021 or 60 days after notification of the new election opportunity is provided. The effective date for an election pursuant to the extended election period is April 1, 2021. The maximum duration of such coverage maps back to the original maximum coverage period. Notably, the extended election period provision creates an important deviation from the general COBRA rule that coverage needs to be continuous. In this case, an individual could “jump back on” to COBRA coverage as of April 1, 2021 without coverage being retroactive and without having to pay retroactive premiums.

    All Qualified Beneficiaries who were covered at the time of the original Qualifying Event would be eligible to elect coverage under the extended election period. This is true regardless of whether all, some, or none of them had actually elected COBRA coverage at the time of the initial Qualifying Event and/or whether any of them were still covered as of April 1, 2021. As an example, if an employee had family coverage in place at the time of the Qualifying Event and elected employee only coverage under COBRA, all of the other family members would have a right to elect coverage under this new extended election period. 

    Subsidy Disqualifying Events: If an assistance-eligible individual becomes eligible (just eligible, not actually covered) under any of the following plans, the subsidy ends.

    • Any other group health plan (other than excepted benefits, health FSA, or QSEHRA coverage)
    • Medicare

    To underscore, if a Qualified Beneficiary is eligible for another employer’s group health plan or a spouse’s group health plan, they would not be eligible for the subsidy. From an administration point of view, this will likely require a monthly attestation on the part of the assistance-eligible individual that they have not become eligible for any of the prohibited coverages.

    Lastly, if a Qualified Beneficiary reaches their COBRA maximum coverage period while in the subsidy period, the subsidy will end. In other words, the existence of the subsidy does not change the maximum duration of COBRA.

    Plan Change Opportunity: The law allows assistance-eligible Qualified Beneficiaries to enroll in a different employer-sponsored plan provided:

    • The employer elects to permit such change in enrollment.
    • The new premium does not exceed the premium of the original plan at the time of the qualifying event.
    • The different coverage is also offered to similarly situated active employees.
    • The different coverage does not consist of: excepted benefits only (such as dental and vision), QSEHRA coverage, or an FSA.

    Ultimately, this provision allows employers to effectively offer a plan change opportunity for assistance-eligible individuals. Notably, this would not be a true open enrollment where someone could add dependents to their COBRA coverage. Rather, it would be an opportunity for a QB to change coverage from, say, a PPO plan to an HMO plan. If offering the plan change opportunity is desired, employers should confirm it will be allowed by their insurance carriers/contracts.
    Decision Point: Employers will need to decide whether to offer this flexibility or not.

    Termination Type Needed! Current COBRA administration processes (and data requirements) do not differentiate between voluntary and involuntary termination or reduction of hours. This distinction is critical for administering this provision.
    Action Item: Employers will need to provide data for each termination Qualifying Event as to whether the event was voluntary or involuntary.

    Notification Requirements: Employers must provide formal notification of these provisions to assistance-eligible individuals, including those in their 60-day election period and Qualified Beneficiaries who would still be in their COBRA maximum coverage period but either never elected COBRA or dropped coverage at an earlier date. The law outlines specific elements which must be included in the notice, the most important of which are the availability of the premium subsidy, the extended election period, subsidy disqualifying events, and the plan change opportunity (if the employer elects to extend this option). The deadline for notification is May 30, 2021 for those who are eligible for an extended election period. Employers must also notify assistance-eligible individuals that their subsidy is expiring between 45 days and 15 days prior to the end of the subsidy. The DOL will be issuing model notices for both the initial subsidy notification and the subsidy expiration notice.

    Premium Recovery via Tax Credit: The bill provides that the mechanism for employers to recoup the subsidized premium is a tax credit against employment taxes. The timing is based on standard quarterly filings.

    Vita COBRA Administration: The Vita COBRA team is already working hard to implement the system changes necessary to accommodate the premium subsidies. Most importantly, the type of termination will need to be confirmed. In addition, employers will need a report of subsidized COBRA premiums for assistance-eligible QBs to calculate and document the tax credit that should be recovered via the employment tax credit.

    Dependent Care FSA Maximum Increased to $10,500

    The maximum election amount for dependent care FSA is increased to $10,500 (from $5,000). This increase is temporary and is only effective for the 2021 tax year. The increased maximum is an employer choice (not a mandatory provision), and employers may amend plans for 2021 retroactively. We anticipate this increase will be universally adopted. Be aware that this change will likely exacerbate discrimination testing failures for employers who have had difficulty passing the tests in the past. We also anticipate that, while the increase is only authorized for the current year, the higher limit will likely become the “foot in the door” that may pave the way for an extension of the increase into the future.
    Decision Point: Employers will need to decide whether to increase the maximum on their plan.

    Paid Sick Leave

    The bill provides an extension and expansion of the paid sick and Emergency FMLA tax credits created in the FFCRA. It allows (but does not require) employers to extend paid sick leave to employees and extends the payroll tax credits for employers who provide the leave to employees. This provision applies to paid leaves effective April 1, 2021 and expires on September 30, 2021. For this period, the payroll tax credit may be taken against all payroll taxes (not just the 6.2% SS tax, like the prior legislation). The law also extends the duration of the paid family leave from 50 days to 60 days and restarts the 10-day limit on the amount of qualified sick leave wages with respect to each employee.

    Summary of Other Provisions

    The bill includes a host of other provisions to benefit individuals and businesses. Following is a very high-level summary of some of the other key provisions:

    • Vaccines: Resources and support for COVID-19 vaccine manufacturing, distribution, administration, tracking, and accelerated research.
    • Business Financial Support: Additional PPP funding and an expansion of the program to include some nonprofits that were previously not eligible. The Employee Retention Credit was also extended through 2021.
    • State and Local Government Support: Financial support to bridge shortfalls in state and local governments’ budgets and to support school re-openings.
    • Individual Relief: Additional $1,400 stimulus payments to supplement the $600 provided in December 2020. Additional $300 per week unemployment supplement. Expansion of Child Tax Credit from $2,000 to $3,000, with a higher credit of $3,600 for children under age 6 (this applies to the 2021 tax year only). Expansion of Child and Dependent Care Tax Credit ($4,000 for one child or $8,000 for two or more children). Increase in ACA premium subsidies (with a cap of 8.5% of household income). Homeowner assistance.
    • Other Provisions: Clarifies that forgiven student loan debt will be tax-free (should a future debt cancelation program be implemented by Congress or via Executive Order). Incentives for states to expand Medicaid. SBA assistance for restaurants, bars, and shuttered venue operators.
  • IRS Clarifies and Expands COVID Relief

    In response to the COVID crisis, the Consolidated Appropriations Act of 2021 provided employers the ability to offer greater flexibility to employees with health FSA and Dependent Care FSA plans. While the flexibility was welcome news for plan participants, for employers, the Act brought with it two things of note:

    1. Additional administration complexities
    2. Unanswered questions and ambiguities

    In an effort to address the unanswered questions, the IRS recently issued Notice 2021-15. The Notice provides important clarity for employers regarding the new flexibility available under FSA plans. However, in the process of proving that clarity, the notice doubled-downed on the administrative complexities required of employers and plans.

    Choices, Choices, Choices

    The notice is chock full of “clarifications” which actually create significant administrative and compliance burdens for employers (and their FSA plan administrators). This reality calls into question whether it is even remotely cost effective to offer the flexibility to participants given the nuanced requirements to assure compliance with the newly clear rules. In addition, all of these relief measures are temporary, so any investment in systems (by FSA administrators) to administer the plan flexibility in a compliant fashion would be lost when FSA plan rules revert back to pre-COVID days.

    When the CAA was passed, FSA plan administrators generally “sucked up” the cost of administering those changes for employers. In light of the nitty gritty compliance required, it is likely that additional charges will be levied by FSA plan administrators for those employers electing to offer additional flexibility to employees.    

    There is also the issue that once temporary plan relief is offered to employees, it becomes difficult to both communicate and manage expectations when plans revert back to their regular, less-flexible state in the future.

    Employers will need to review the permissive flexibility offered and make decisions about whether to implement changes or not.

    The Short Summary

    Essentially all of the relief and plan flexibility measures have been further extended. This includes three main areas:

    • FSA Plan Flexibility:  Carryover and grace period relief is extended to plan years ending in 2021. Dependent care age is extended in certain circumstances. Post termination spend downs can be allowed. New retroactive eligibility allowed for mid-year changes.
    • HSA Issues: Clarification that certain FSA relief measures may have an adverse impact on participants making HSA contributions.
    • Health Plan Mid-Year Elections: Extension of prospective changes to health, dental, and vision plans.
    • Plan Amendments: Allows employers additional time for plan amendments.

    The relief offered empowers employers to add significant flexibility to their health plans, and specifically FSA plans. These changes can benefit plan participants, however, they can add significant administrative complexity to the plan and require considerable employee education to enable understanding of the nuances.

    What’s Actually New?

    There are two new expansions to the FSA plan flexibility that employers can offer employees in the new IRS Notice:

    1. Post Termination FSA Reimbursements: This allows for reimbursement of claims incurred after termination up to the Plan Year to date contribution amount (without electing COBRA). This effectively suspends the Use-it-or-Lose it rule.
    2. Mid-Year Election Changes: This allows for open access to mid-year election changes for medical, dental, and vision plans.

    These are the two truly new provisions. However, it does bear repeating that the most frequently asked question from the CAA is, “Can we really do rollovers for dependent care plans?” To reiterate, the answer is, “Yes” for this temporary period.

    What’s Actually Not New?

    Much of Notice 2021-15 does not offer anything new. Rather, it adds significant clarity to what was otherwise bare-bones legislation.

    Over the course of the last several months since the CAA was passed, employers, advisors, and administrators alike have faced the realities of the lack of clarity and the complexities in administering what we know to be well-intended legislation to support plan participants in difficult times. However, the reality that has unfolded is a bit challenging from the perspective of airtight plan compliance. In the descriptions below, we have highlighted in italics some of these administrative complexities.

    $100 Note with Mask

    FSA Plan Flexibility

    Carryover: Employers, at their discretion, may amend their §125 Plan to allow for a carryover of all or part of the unused balance remaining in a health FSA or dependent care FSA as of the end of a plan year.

    • This applies to plan years ending in 2020 (carried over to 2021) and to plan years ending in 2021 (carried over to 2022).
    • Employees may be required to enroll in the FSA with at least a minimum election amount to have access to unused amounts from a prior plan year. (Most FSA administrators currently do not have the ability to track this.)
    • This provision is optional, and employers may limit carryover amounts or the period during which carryovers can be used. (Limiting the period in which carryovers can be used is also something many FSA administrators do not have the ability to administer.)
    • This applies to regular health FSAs, HSA-compatible FSAs, and dependent care FSAs. (Dependent care “rollovers” are not allowed under traditional FSA rules, thus that functionality is not built into most systems.)
    • Applies to plans with a regular $550 rollover provision and/or to plans that do not currently include a rollover provision.  
    • Employers may offer participants the ability to opt out of a carryover in order to preserve HSA eligibility. (If a rollover is offered, the consequence of not opting out should be communicated to employees currently contributing to an HSA . . . which is not an easy task. Processing such an opt out is likely to require manual processing by most FSA administrators.)
    • Funds may be rolled over to an existing Limited Purpose FSA without impacting HSA eligibility.
    • Alternatively, employers may allow employees to make a mid-year election change and flip their health FSA from a Limited Purpose FSA to a general purpose FSA for a portion of the year and, presumably, flip it back as well. (Generally, the flipping process is done upon reaching the statutory deductible, not at a point selected by the individual. Most systems are not programmed to allow mid year flipping such as this and will require manual intervention.)   
    • Amounts carried over are not included in calculations for discrimination testing. (This will require differentiated reporting of carryover balances vs. current contribution balances for testing purposes.)
    • As with all plan provisions, notification of plan changes to employees is required. (Employee education and communication of these plan nuances is not an insignificant endeavor.)
    • The Notice lacks clarity about whether dependent care amounts rolled over that exceed the $5,000 annual cap (in the subsequent plan year) are taxable to employees. In a notable deviation, the guidance does clarify that health FSA rollover amounts do not impact the maximum election amount. (Employers will need to make assumptions on taxation of excess amounts given the lack of clarity provided. We would recommend employers take the conservative approach and tax employees on any excess contributions.)
    • While on a prospective basis, employers could encourage employees to consider reducing their new election amount to account for any potential rollover amount, this is not always a known calculation. Additionally, many elections for the 2021 plan year have already been made without knowledge of this potential.

    Grace Period Plans: Employers, at their discretion, may amend their §125 plans to extend the period for incurring claims.

    • This applies to plan years ending in 2020 and 2021
    • The grace period may be extended for up to 12 months after the end of the plan year.
    • Applies to both health care and dependent care FSAs. However, amounts remaining may only be used for the same benefit (health FSA or dependent care FSA). 
    • Unused amounts from one plan year that remain available at the end of a 12-month grace period (i.e., at the end of the next plan year) need not be forfeited and may be made available in the next grace period.  
    • Employers may permit an extension of a grace period for any number of months and it is not required to extend the grace period for a full 12 months.
    • Existing IRS rules regarding reporting dependent care FSA elections (W-2, Box 10) direct employers to report salary reductions elected by employees without regard to amounts that may remain available during a grace period. This rule continues to apply with respect to the extended grace period allowed under this Notice. The same applies for reporting by employees on Form 2441.
    • As with all plan provisions, notification of plan changes to employees is required. (Employee education and communication of these plan nuances is not an insignificant endeavor.)
    • Amounts made available during a grace period are not included in calculations for discrimination testing. (This will require differentiated reporting of grace period balances for testing purposes.)

    Post Termination Reimbursements: The notice provides a special rule regarding post-termination reimbursements from health FSAs. At their discretion, employers may allow terminated health FSA participants to spend down their balance.    

    • This applies to employees who ceased participation during the 2020 or 2021 calendar year.
    • Reasons include termination of employment, change in employment status, or a new election to revoke contributions.
    • Unused balances may be reimbursed by expenses incurred through the end of the plan year in which participation ceased, including any grace period. (FSA administration systems are set up for this type of “spend down” arrangement for dependent care accounts, but not for health FSA plans.)
    • Employers may elect to offer a shorter spend down period.
    • Employers may limit the unused amounts to the employee’s salary reductions through the date participation ceased. (Systems are not established to allow for this type of customization.)
    • The spend-down will not prevent individuals from having a loss of coverage for COBRA purposes. Therefore, COBRA notifications offering Health FSA coverage must still be sent to Qualified Beneficiaries. Employers may allow employees to be reimbursed for up to the amount contributed to the HCFSA as of the date of the Qualifying Event or the employee may elect COBRA coverage to access the entire FSA election.

    Dependent Care Age Relief: Employers may extend the maximum age from 12 to 13 when reimbursing dependent care expenses.

    • This applies for participants whose enrollment period ended on or before Jan. 31, 2020. (The wording in the Notice is a little convoluted. For elections that qualify based on the timing of the election, the Notice allows children an additional year to incur claims. If a child turned 12 and aged out of the plan during 2020, expenses could be reimbursed through age 13.
    • This provision does not apply for 2021 plan years (or for any elections after the cutoff date).    
    • Allows employees to use remaining balances which were previously elected.
    • This provision does not allow for prospective elections for children who are already over age 12.
    • Balances may be used in the following plan year.
    • Employers can adopt this relief without adopting the carryover or grace period relief.
    • Administrative difficulties will potentially ensue with this provision, especially if the participant has other eligible children. (FSA administration systems are built to track dependent care reimbursements against the total balance, not to specific children.)

    Mid-Year Election Changes – FSA Plans: The guidance allows certain, prospective mid-year election changes for health and dependent care FSAs for plan years ending in 2021. At the employer’s discretion, plans may allow employees to prospectively revoke, increase, decrease, or make a new FSA election mid-year.

    • Election changes are not required to meet the standard election change requirements outlined by the IRS.
    • Amounts contributed to an FSA after a revised election can be used for eligible expenses incurred during the first plan year beginning on or after January 1, 2021, even if the employee was not enrolled in the FSA on January 1, 2021.
    • Employers must define how unused contributions are treated following a revocation. Specifically, are contributions available to reimburse expenses incurred during the rest of the plan year or only before the revocation? (FSA administration systems do not typically do not allow for this type of customization.)
    • HSA eligibility will be impacted by a “crossover” in reimbursement eligibility due to this provision. If a health FSA allows an election revocation that terminates plan participation but allows reimbursements to be received regardless of when expenses were incurred, the health FSA will be considered disqualifying coverage for HSA eligibility purposes.
    • If expenses incurred before participation ends can be submitted, the health FSA will not be considered disqualifying coverage for months after the revocation date.
    • An employer may allow amounts contributed to a health FSA or dependent care FSA after a prospective election change opportunity, to be used for any eligible expenses incurred retroactively to the start of the plan year that begins on or after January 1, 2021.
    • For example, under a calendar year plan, an employee who makes a mid-year election to enroll in an FSA on February 1, 2021 may use the FSA for claims incurred back to January 1, 2021, even though the employee was not enrolled in a health FSA or dependent care FSA at that time. (FSA administration systems are typically set up to require claims to be incurred after the election date, as is required by the regular cafeteria plan rules.)
    • Allowing elections to cover retroactively incurred claims is a significant deviation from all standing guidance for FSA plans. It also opens up the plan to the potential for significant adverse selection and payroll processing complexities.

    Mid-Year Election Changes – Health Plans: The guidance also presents a NEW election change opportunity for plan participants. Participants may make prospective mid-year election changes in medical, dental or vision coverage.

    • Applies to plan years ending in 2021.
    • At the employer’s discretion, plans may allow employees to prospectively make any of the following changes mid-year:
      1. Make a new health plan election
      2. Revoke and existing health coverage election and elect other coverage offered by the employer
      3. Revoke an existing health coverage election.
    • Election changes are not required to meet the standard election change requirements outlined by the IRS.
    • If coverage is revoked, employees must attest in writing that they have obtained other health coverage not sponsored by the employer. (A sample attestation is provided.)
    • Employers have full latitude to offer some or all of the election change opportunities. This includes restricting changes to a specific type of coverage (say, medical only) or offering change opportunities for certain of the change options but not others.

    HSA Issues

    The relief measures provided for FSA plans could wreak havoc on participants making contributions to an HSA. To this end, the IRS directly addressed and clarified several important issues.

    • Carryover relief, grace period relief, and health FSA spend-down are considered extensions of non-HDHP coverage that adversely affect eligibility for HSA contributions (unless the health FSA is HSA-compatible).
    • Plans can be amended to allow employees to opt out of a carryover or extended period for incurring claims in plan years ending in 2021 and 2022 to preserve HSA eligibility. (But this add significant complexity for employers and FSA administrators since these type of elections are not typically done on an individual basis.)
    • Plans may also allow midyear election changes to switch between HSA-compatible and general-purpose health FSAs (or vice versa).
    • Care must be taken when making any such change as both timing of coverage and type of account matter in defining HSA eligibility. To maintain HSA eligibility, it is important that participants not be covered by a general purpose FSA or any other non-HDHP coverage.

    Health Plan Election Changes

    Employers, at their discretion, may permit §125 plan participants to make the following changes, provided they are made on a prospective basis:

    • Make a new election (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)
    • Revoke an existing election, 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.

    This applies to health, dental, or vision coverage, and it applies for plan years ending in 2021. This relief mirrors previously provided relief for calendar year 2020).

    For the situation when an employee attests that they have or will enroll in other health coverage, sample attestation language is provided in the notice. Also, the notice states that employers may rely on an employee’s attestations absent actual knowledge to the contrary.

    Employers have full discretion in electing to fully or partially extend these relief measures and can place certain other limits on these changes so long the plan impact does not discriminate among plan participants.

    Plan Amendments 

    Consolidated Appropriations Act of 2021: Employers wishing to implement elements of the permissible changes allowed by the Consolidated Appropriations Act of 2021 must adopt an amendment by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, for calendar year 2020 plans, amendments must be adopted prior to December 31, 2021. In the meantime, plans must operate their plans in accordance with the amendment’s terms retroactive to its effective date.

    Employers must also inform eligible employees of the changes. The deadline for adopting a carryover relief amendment is based on the end of the plan year from which the funds are carried over.

    CARES Act: Employers planning on implementing Cares Act provisions allowing tax-favored reimbursement of expenses for OTC drugs without prescriptions and menstrual care products in health FSAs and HRAs must also execute formal plan amendments.

    Employer Action

    Employers should review the permissive flexibility offered by the CAA and carefully consider whether to adopt any provisions. The additional administrative burden (both internally and in concert with FSA administrators) and the potential cost (both time and potential administrative expense) should be carefully weighed against the additional flexibility the relief offers for plan participants.