The Coronavirus Aid, Relief and Economic Security Act (CARES Act), recently signed into law, permanently reinstates the coverage of OTC (Over-the-Counter) drugs and medicines as eligible for reimbursement from FSAs, HRAs, and HSAs, without the need for a prescription. Feminine care products are now considered part of the expanded list of OTC items, including tampons, pads, liners, cups, sponges, or similar products used by consumers with respect to menstruation. This change is retroactively effective for expenses incurred on or after January 1, 2020. Important to note that these claims may need to be processed manually for a period, rather than via debit card.
IRS guidance also provides relief for all High Deductible Health Plans (HDHPs) confirming that they will not fail to maintain HDHP status if they provide medical care services and items purchased related to testing for and treatment of COVID-19 prior to the satisfaction of the applicable minimum deductible. This means coronavirus testing and treatment are considered a qualified medical expense under an HDHP, and individuals can use their HSA to pay for any out-of-pocket expenses. In addition, the CARES Act allows high-deductible health plans paired with health savings accounts (HSAs) to cover telehealth services before a patient has met the plan deductible.
Changes to Elections
The CARES Act does not include language indicating that employees can make changes to their Health Care FSA (HCFSA) annual elections. A change in anticipated medical expenses is not a change in status or other event that permits an election change. If an employer suspends the operations of its business but the employee will continue to get paid during the suspension, the current regulations do not allow a participant to change their HCFSA annual election. If the employees will not be paid during this suspension, this may qualify as an unpaid leave and employees may be allowed to revoke their HCFSA election. While a decrease in compensation does not permit a HCFSA mid-year change, if an employee’s decrease in hours causes him or her to not qualify as a participant, then the employee would be permitted to discontinue participation.
Employers subject to COBRA must offer COBRA to any terminated employee who has a positive balance in their HCFSA as of the date of their termination. HCFSA COBRA will not be offered to any terminated employee with a negative HCFSA balance.
Employees who are temporarily laid-off or furloughed without pay will be able to suspend their HCFSA contribution and submit claims for expenses incurred on or before their date of temporary lay-off or furlough. If a temporarily laid off or furloughed employee is out of work for more than 30 days, the plan can allow the employee to make a new election, require that the old election be reinstated when they return to work, or keep the employee out of the plan until the next plan year. Temporarily laid-off or furloughed employees who returns to work within 30 days may be permitted to continue his or her original election amount for the balance of the plan year less the contribution amount for the period of time that the employee was temporarily laid-off or furloughed. If a temporarily laid-off or furloughed employee suspends their HCFSA contribution, expenses incurred during the temporary lay-off or furlough are not eligible for reimbursement.
The IRS permitted election change rules to allow a participant to increase or decrease an annual Dependent Care FSA (DCA) election due to a significant change in the cost of a dependent care provider. If the employee is no longer paying for care, or if the employee hired alternative care for a child, they may elect to decrease or increase annual DCA contributions, accordingly.
Employees who are laid off or furloughed can submit claims for DCA reimbursement up until any funds in the account are exhausted, even if they have stopped contributions. Claims must be submitted during the applicable run-out period. As long as the plan does not prohibit employees from doing so, dependent daycare expenses incurred after the date an employee is furloughed or laid-off and through the last day of the plan year (or grace period, if one exists) may be reimbursed from a DCA balance, if all of the requirements of Section 129 are satisfied.
Unless your plan does not permit it, Health Saving Account (HSA) and Commuter Reimbursement Account pre-tax employee payroll contributions can be increased, decreased or discontinued at any time. Employees who are laid off can discontinue their contributions until they return to work.
Employers may decrease the amount and/or type of expenses that are reimbursed from a Health Reimbursement Arrangement (HRA) during the Plan Year. Employees who are laid off or furloughed can submit claims for expenses incurred on or before their date of termination of employment, unless the Employer decides to keep them active on their HRA. Employees who are laid off or furloughed may be able to elect COBRA and continue to be covered by their medical insurance plan and their HRA.
Employers should review their current cafeteria plan documents and leave policies to make sure the answers comply with your plan documents and policies.
We understand that this is an evolving situation and further updates will be provided as information becomes available. If you have any questions, please complete the form below: