Why All Businesses Need an Insurance Broker

“Why do I need a broker?” This is a question that surprisingly gets asked more than you would expect.  In today’s society of consumerism, the internet, and “do it yourself” mentality, tied with the desire to save money, this is a valid question. I would ask in turn – would you go to court without legal representation? Of course not.  It makes financial sense to use a broker as in most cases, you do not get charged for their services. Typically brokers are paid by the insurance carrier, the one that you jointly decide best meets your needs as an employer.  More importantly, brokers protect your best interests as an objective third party. There is no specific financial incentive for brokers to decide on one insurance provider over another.

An insurance broker acts as an intermediary between you and your insurer, lessening the administrative burden for you and negating the need for you to weed through complex policy jargon. We bring over 200 years of training and experience and our insurance know-how, and our goal is to always find a policy that best suits your coverage needs at the best possible price. Brokers do the shopping and analysis on your behalf, saving you the time of plodding through quotes from various carriers and trying to determine the optimal solution. We provide impartial advice based on the client’s unique situation.

Some of the benefits of using an insurance broker are as follows:

  • We review, listen, and understand to what you are trying to accomplish
  • We search the entire marketplace looking for the best coverage at the most affordable price
  • Once we find the ideal coverage, we review and discuss with you the cost, coverages, and exclusions in simple language so there are no misunderstandings
  • We walk you through the appropriate paperwork and submit it on your behalf to the insurance company
  • Once we have approval, we continually assist and advise you throughout the year to ensure you are getting the most from your plan
  • We assist with issues like billing and claims questions
  • We have compliance experts who will deal with issues like healthcare reform and COVID-19 regulations, ensuring your policies pivot as necessary
  • Come renewal time, we are there to negotiate for you and handle much of the legwork involved

These are very important considerations for you to take into account when deciding if a broker is right for you. The alternative is to spend a lot of your own time educating yourself, taking away valuable time from your day job and family. Insurance brokers go through strict educational and licensing requirements and have significant knowledge in the industry. Our deep understanding of your local market and the players involved ultimately yield enhanced, cost-effective coverage for you.

All that said, it’s important to note that not all brokers are the same. Some have specialized services and products or are focused on specific markets.  For example, there are brokers with expertise in the property and casualty or life insurance areas but that just dabble in health insurance. Today some payroll companies are even offering employee benefit services as well but again, their bread and butter is payroll, not benefits. To offer an analogy – you would not go to a foot doctor to address a heart condition, so make sure your broker’s core competencies are the ones you need.

In summary, your insurance needs are best met by a broker who works for you and not by an insurance company, who have their own interests to look out for. Brokers yield more choices, usually at a much lower cost to you and your business. Unless you happen to be an expert in insurance plans, why risk the headache and lose the resources needed to do it on your own? Further, a consultative broker like Spring will take the time to truly understand your business so we can constantly be on the lookout for new and innovative solutions that will align with your objectives.

People are typically the largest investment a company makes. Taking care of those people through employee benefits is a niche area of your business, and you need an insurance broker who has the training and expertise necessary in today’s complicated and competitive marketplace. Spring’s approach to brokerage is collaborative and strategic, but we ultimately remove the legwork for you and ensure you have the best plan options available.

7 Predictions About How COVID-19 Will Change Healthcare

Covid-19 has taken the world by storm, and a myriad of markets are being impacted significantly. Businesses of all sizes are having to implement layoffs, terminations and furloughs to stay afloat, even with the federal relief being offered. At the crux of it all is health care: where we look to save the lives of our friends and loved ones, where we rely on accessibility to care, where we put our hopes for a cure.

Some would argue that health care in the U.S. was broken before the pandemic hit. Whether you agree with that or not, Covid-19 has no doubt highlighted gaps in the health care system and our abilities to handle a catastrophe. Health care providers, insurance carriers, employers and consumers will all be impacted even after the dust settles and the urgency diminishes. Here are seven ways we expect the health care markets to be affected.

1. Telemedicine is here to stay

While early adopters were already utilizing telemedicine, everyone has come to see the real value of it. Covid-19 has instilled in most people a certain degree of germaphobia that isn’t likely to go away any time soon, so many are wondering why they would go to a hospital or clinic to get a diagnosis, consultation or prescription when they don’t need to. That said, there is a demographic divide here: older generations, who often have more medical needs and appointments, are generally less comfortable switching to a digital format.

A great advantage of telemedicine is its ability to even the playing field in terms of access. It doesn’t matter if you live in Manhattan or the rural countryside, you can get the same care at a comparable price. This is extremely important as we see the ways in which Covid-19 has widened the socioeconomic divides in our country.

Telemedicine will rise in popularity for mental and behavioral health issues as well. This at a time when anxiety, depression and hardships are at a recent high. We also anticipate a boost in concierge telemedicine services as well.

An increase in telemedicine utilization may yield cost savings in the long term. In the short term, however, details are blurry in terms of pricing for visits. Further, some people now using telemedicine may not have otherwise seen a doctor at all, which skews utilization rates.

2. Deferred health costs

There are still a lot of unknowns regarding the impact Covid-19 will have on health insurance costs. At a high level, we estimate the net impact on the cost of medical claims over 12 months (April 4, 2020 to March 3, 2021) for an “average employer” to be an increase of 6%-8%, with most simulation results in the range of 2%-14%. Member demographics, location and industry will impact these projections. Further, our proprietary modeling shows that short-term drug spend is up, while short-term medical spend is down.

3. Cost shifting

The April unemployment rate for the U.S. was 14.7%. For comparison’s sake, the average unemployment rate for the year of 2019 was 3.6%. This uptick in unemployment will cause many who were previously covered under employer-sponsored health plans to move to governmental programs, such as Medicaid or Medicaid, if eligible, as these are much less costly than the employer-sponsored plan’s COBRA. In fact, commercial prices are often far more than 50% above Medicare payment rates according to the Medicare Payment Policy report to Congress. As the unemployed struggle with finances and find themselves in different income brackets, this shift will be significant.

As a result, health care facilities, which are already losing revenue due to the lack of elective procedures during the pandemic, will face further financial woes because they make less money from patients who are insured through governmental programs than they do for those insured commercially. Meanwhile, the commercial insurers (i.e., Cigna, Blue Cross Blue Shield), may actually save money amid the crisis due to a lower volume of claims (which goes back to the delay of elective procedures). This point is important for employers to be aware of as a negotiating tactic as they approach their plan renewal.

4. Expansion of coverage

With the government and carriers making exceptions to existing health plan policies through 2020, it is clear that we were dealing with critical coverage gaps, and we anticipate these areas to stay written into health plans. This goes for telemedicine benefits, counseling and mental health, extra prescription refills, relaxed utilization management requirements, specialized treatment, vaccines and changes to flexible spending account (FSA), health savings account (HSA) and health reimbursement arrangement (HRA) eligible purchases. The result will be an overall broader offering of benefits at a higher cost.

5. Push for more government involvement

Throughout the crisis, we have learned that employer-sponsored programs can only get us so far. Especially with election season upon us, we’re predicting a jump in support for programs like Medicare For All, where a public program better suited and funded for “unprecedented circumstances” would already be established. We can see this in the recent grant of additional funding for Medicaid.

6. Greater focus on claims control strategies

We expect employers to take a closer look at how they can minimize volatility and improve population health management. This might involve a stronger emphasis on risk management strategies and programs and advanced data and reporting procedures. More companies will be turning to consultants and actuaries for things like trend analyses, audits, repricing and projections. We anticipate that more businesses will be considering population health management programs as a long-term strategy for a healthier population that will, in turn, lower claims costs and lessen operational risk in the face of a similar catastrophe. More than ever, the key to a business’s success will stem in part from its ability to encourage and facilitate a healthy workforce.

7. Rethinking long-term care

Among the many hardships the world faces today lies the fear instilled in those who have loved ones in nursing homes or like facilities. Based on the observations from the current crisis, they are hubs for exposure and infection among an already high-risk population. We predict the health care system of the future to include an overhaul of home health care programs and assistance, as many will not feel comfortable in larger care facilities, something once commonplace.

In summary, the outlook for the health care industry post Covid-19 will be a mix of positives and negatives. We do expect a hike in plan costs and mentality shifts that move people beyond traditional health care. Further, organizations of all types will be carefully analyzing their health care spend and loss history, gaining a better understanding of where each dollar is going and if it can be spent more strategically. These factors and more will constitute what will gradually become the new normal.

Legal Alert: PCORI Fees Due By July 31, 2020


Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2020 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI).  As background, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury.  Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019, as it only applied to plan years ending on or before September 30, 2019.  However, the PCORI fee was extended to plan years ending on or before September 30, 2029 as part of the Further Consolidated Appropriations Act, 2020. COVID-19 law

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date.  This year, employers will pay the fee for plan years ending in 2019.

For plan years that ended between January 1, 2019 and September 30, 2019, the fee is $2.45 per covered life and is due by July 31, 2020.

Since the extension of the PCORI fee deadline in December, issuers and sponsors of self-funded plans have been anxiously awaiting information from the IRS concerning the applicable PCORI fee for plans with plan years ending between October 1, 2019 and before October 1, 2020.  On June 8, 2020, the IRS Issued Notice 2020-44, which sets the applicable PCORI fee for these plans at $2.54 per covered life.  As of June 8, the IRS has not released the second quarter Form 720.  The second quarter Form 720 must be used to pay the PCORI fee.

In addition, Notice 2020-44 provides transition relief to issuers and self-funded plan sponsors for purposes of calculating the PCORI fee for plan years ending on or after October 1, 2019 and before October 1, 2020.  The rationale provided by the IRS is because issuers or plan sponsors may not have anticipated the need to identify the number of covered lives during this time period because they believed the PCORI fee expired on September 30, 2019.

Accordingly, the IRS provides that plan sponsors of impacted plans may continue to use the actual count, snapshot, or Form 5500 method to calculate the average number of lives and determine the applicable PCORI fee.  These methods are discussed more fully later in this alert.  Additionally, the IRS also provided that plan sponsors of impacted plans may opt to use a “reasonable method” to calculate the average number of covered lives for the plan year ending on or after October 1, 2019 (but before October 1, 2020) as long as the method is applied consistently for the duration of the plan year.

Therefore, for example, a plan year that ran from July 1, 2018 through June 30, 2019 will pay a fee of $2.45 per covered life and use the snapshot, Form 5500, or actual count method to determine the average number of covered lives.  On the other hand, calendar year 2019 plans will pay a fee of $2.54 per covered life and use the snapshot, actual count, Form 5000, or another reasonable method to calculate the average number of covered lives for the plan year.

The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return.

NOTE: Employers must wait until the second quarter Form 720 is released by the IRS to pay the fee.  If this is an employer’s last PCORI payment and they do not expect to owe excise taxes that are reportable on Form 720 in future quarters (e.g., because the plan is terminating), they may check the “final return” box above Part I of Form 720.

Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense.

Historical Information for Prior Years

  • For plan years that ended between October 1, 2018 and December 31, 2018, the fee is $2.45 per covered life and was due by July 31, 2019.
  • For plan years that ended between January 1, 2018 and September 30, 2018, the fee is $2.39 per covered life and was due by July 31, 2019.
  • For plan years that ended between October 1, 2017 and December 31, 2017, the fee is $2.39 per covered life and was due by July 31, 2018.
  • For plan years that ended between January 1, 2017 and September 30, 2017, the fee is $2.26 per covered life and was due by July 31, 2018.
  • For plan years that ended between October 1, 2016 and December 31, 2016, the fee is $2.26 per covered life and was due by July 31, 2017.
  • For plan years that ended between January 1, 2016 and September 30, 2016, the fee is $2.17 per covered life and was due by July 31, 2017.
  • For plan years that ended between October 1, 2015 and December 31, 2015, the fee was $2.17 per covered life and was due by August 1, 2016.
  • For plan years that ended between January 1, 2015 and September 30, 2015, the fee was $2.08 per covered life and was due by August 1, 2016.
  • For plan years that ended between October 1, 2014 and December 31, 2014, the fee was $2.08 per covered life and was due by July 31, 2015.
  • For plan years that ended between January 1, 2014 and September 30, 2014, the fee was $2 per covered life and was due by July 31, 2015.
  • For plan years that ended between October 1, 2013 and December 31, 2013, the fee was $2 per covered life and was due by July 31, 2014.
  • For plan years that ended between January 1, 2013 and September 30, 2013, the fee was $1 per covered life and was due by July 31, 2014.
  • For plan years that ended between October 1, 2012 and December 31, 2012, the fee was $1 per covered life and was due by July 31, 2013.

Explanation of Counting Methods for Self-Insured Plans

As discussed above, plan sponsors of plans years ending before October 1, 2019 may choose from the below three methods below when determining the average number of lives covered by their plans. Plan sponsors with plan years ending on or after October 1, 2019 and before October 1, 2020 can use any of the three methods below or another reasonable method. The IRS did not specify a reasonable method that could be used, though employers should use good faith when determining the count.

Actual Count method.  Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.

Snapshot method.  Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).

Form 5500 method.  Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2.  For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.

Special rules for HRAs. The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.


About the Author.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2020 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved

Legal Alert: Agencies Extend Deadline to Pay COBRA Premiums and Certain Other ERISA and Internal Revenue Codes Due to COVID-19

This legal alert was updated May 13, 2020.

A cafeteria plan, or Section 125 plan, sometimes referred to as a POP plan, allows employees to pay for certain expenses on a pretax basis. Employees choose between a taxable benefit (cash, typically distributed via payroll) and two or more pre-tax qualified benefits. Just like standing in line at a cafeteria and selecting a salad, a plate of meatloaf, and a carton of milk, employees can “stand in line” and select health insurance, vision insurance, and dental insurance – and more! The IRS limits the benefits that can be offered through a cafeteria plan.COVID-19 law

  • Coverage under an accident or health plan (traditional health insurance, self-insured reimbursement plans, dental, vision, etc.)
  • Health care expense reimbursement plans (FSAs)
  • Dependent care assistance benefits
  • Paid time off
  • Adoption assistance benefits
  • Health savings accounts (HSAs)
  • Group term life
  • 401(k) contributions


Employees can make elections and select which of the offered benefits they would like to enroll in. Employees can choose to cover other individuals, including spouses and dependents, if the employer’s plan allows. These elections are prospective, with an exception for birth, adoption and placement for adoption as well as new hires, when the employer’s plan does not impose a waiting period for new employees. The IRS considers pretax elections to generally be irrevocable unless a permitted event occurs or there is an exception. These events sometimes overlap and fall into three general categories, HIPAA special enrollment events, change in status events, and other triggering events.

A plan sponsor is not required to recognize any midyear changes to pretax elections. However, for practical purposes, because HIPAA requires group health plans to provide a special enrollment opportunity to an employee upon the occurrence of specific events (e.g. marriage, birth, adoption, etc.)¹ most plan sponsors at a minimum will design their plan to recognize HIPAA special enrollment events, permitting changes to pretax elections midyear. All of the events however are optional, and a plan sponsor must ensure their plan documents affirmatively indicate which of the events are recognized.

Gain dependent(s) due to marriage Employee or dependent becomes entitled to Medicare or Medicaid Employee/dependent status change results in gaining eligibility under the plan (e.g., new job; part-time to full-time) Plan makes SIGNIFICANT cost change Plan makes automatics small cost change(s)
Lose spouse (e.g., divorce, legal separation, death of spouse) Employee or dependent becomes entitled to premium assistance subsidy for Medicaid or CHIP Employee/dependent employment change results in losing eligibility under employer plan (e.g., full to part-time; unpaid leave) Plan makes SIGNIFICANT curtailment in coverage Other employer’s plan increases/decreases/ceases coverage
Gain/lose child (e.g., birth adoption or placement for adoption/death) Employee or dependent loses entitlement for Medicare, Medicaid, or CHIP Employee hours of reduced to average less than 30 hours a week Plan eliminates/adds new benefit or coverage option Other employer’s plan offers open enrollment
Dependent loses/gains eligibility (e.g., child reaches age limit/becomes student after age 26) Change in residence triggers gain/loss eligibility (e.g., move in/out of a plan services area Employee becomes eligible to enroll in a QHP in the Marketplace Order requiring plan to add child(ren) to health plan coverage Order requiring another employer’s plan to add child(ren) to health plan coverage


The following situations are not cafeteria plan qualifying events:

  • Change in employee’s finances
  • Change in employee’s medical condition (worsens/heals)
  • Provider leaves network, unless it results in a significant reduction of coverage (e.g., the only gastroenterologist in the network leaves)
  • Legal separation, unless it causes the spouse to lose eligibility under the terms of the plan. (Many plans eligibility isn’t lost until divorce is final.)
  • Commencement of domestic partner relationship
  • Dependent or spouse leaves/returns from prison/jail, unless it causes the individual to lose HMO eligibility due to change in residence

On May 12, 2020, the IRS issued Notice 2020-29 which, among other things, allow employees to amend their cafeteria plans to permit employees to make mid-year changes for the following purposes:

  • For employer-sponsored health coverage:
    • Make a new, prospective election if the employee had previously declined coverage;
    • Revoke an existing election and make a new, prospective election to enroll in different health coverage sponsored by the employer; or
    • Prospectively revoke coverage if the employee attests in writing that they are enrolled in, or immediately enroll in, other health coverage not sponsored by the employer. The Notice provides a sample attestation employers can use and may rely on the written attestation unless the employer has actual knowledge the employee is not, or will not be, enrolled in other comprehensive health coverage.
  • For FSA coverage:
    • Prospectively revoke an election, make a new election, or decrease or increase an election to a health FSA (including a limited purpose health FSA) or DCAP.

Notice 2020-29 provides that employers may amend their plans to allow each eligible employee to make prospective election changes or an initial election regardless of whether the election change satisfies one of the permitted election changes under applicable Treasury regulations. The Notice is very clear that this is not a free-for-all. The employer has the discretion to impose parameters for these election changes, including the extent to which the election changes are permitted and applied, and they can limit the period during which election changes may be made.

The relief may be applied retroactively to January 1, 2020; however, as set forth above, all election changes must be prospective. The retroactive application of the relief is to cover any employer who may have allowed an election change that may not have been consistent with Section 125 (but would be consistent with one of the permitted election changes discussed above).

Finally, employers must ensure the election changes do not result in failure to comply with the nondiscrimination rules. The Notice provides strategies an employer may use to ensure there is no adverse selection of health coverage, such as limiting elections to circumstances in which an employee’s coverage will be increased or improved as a result of the election change (ex. switching from self-only to family coverage).

For more COVID-19 legal alerts, please visit our resource center at aleragroup.com/coronavirus/#legalalerts.

If you have any questions related to this alert, please reach out to your Alera Group advisor or email us at info@aleragroup.com to be connected with your local firm.


¹Special Enrollment rights are not required for “HIPAA-excepted benefits” which generally include stand-alone dental, vision and most health care FSAs.


The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc. Reviewed as of 05/13/2020.

Legal Alert: Tax Credits Under FFCRA: Qualified Leave Wages & Health Plan Expenses

This content was last reviewed on April 14, 2020.

Employers who are uncertain about how to calculate their qualified health plan expenses and qualified leave wages should consult with their legal counsel or financial adviser.COVID-19 law

The Families First Coronavirus Response Act (“FFCRA”) created two new refundable tax credits intended to reimburse employers for costs associated with their financial obligations to provide leave benefits created by the Act plus the cost of continuing health insurance for employees on FFCRA leave.

Employers with fewer than 500 employees (“eligible employers”) are entitled to receive a credit in the full amount of the qualified sick leave wages and qualified family leave wages, plus allocable qualified health plan expenses and the employer’s share of Medicare tax, paid for leave during the period beginning April 1, 2020, and ending December 31, 2020.

Determining what is meant by “costs associated” and to understand what is included in the tax credits, the DOL’s guidance references the Internal Revenue Code.

  • Qualified health plan expenses are amounts paid or incurred by an Eligible Employer to provide and maintain a group health plan (as defined in section 5000(b)(1) of the Internal Revenue Code) that are allocable to the employee’s qualified leave wages.
  • Qualified leave wages are wages as defined in section 3121(a) of the Internal Revenue Code for social security and Medicare tax purposes.

In general, the term “group health plan” as defined in Section 5000(b)(1) includes all plans that are subject to continuation coverage under COBRA, such as medical, dental, vision, health FSA and HRA.

  • (1) Group health plan the term ‘‘group health plan’’ means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families

However, the provisions related to determining which contributions by an employer to these health plans are allowed to be included for purposes of claiming payroll tax credits and the extent these amounts are excluded from the gross income of employees under Section 106(a) of the Code is not black and white.

  • 26 CFR 1.106-1: Contributions by employer to accident and health plans indicates:
    (a) The gross income of an employee does not include the contributions that the employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness incurred by the employee, the employee’s spouse, the employee’s dependents (as defined in section 152 determined without regard to section 152(b)(1), (b)(2), or (d)(1)(B)), or any child (as defined in section 152(f)(1)) of the employee who as of the end of the taxable year has not attained age 27. The employer may contribute to an accident or health plan either by paying the premium (or a portion of the premium) on a policy of accident or health insurance covering one or more of his employees, or by contributing to a separate trust or fund (including a fund referred to in section 105(e)) which provides accident or health benefits directly or through insurance to one or more of his employees. However, if such insurance policy, trust, or fund provides other benefits in addition to accident or health benefits, section 106 applies only to the portion of the employer’s contribution which is allocable to accident or health benefits. See paragraph (d) of § 1.104-1 and §§ 1.105-1 through 1.105-5, inclusive, for regulations relating to exclusion from an employee’s gross income of amounts received through accident or health insurance and through accident or health plans. For the treatment of the payment of premiums for accident or health insurance from a qualified trust under section 401(a), see §§ 1.72-15 and 1.402(a)-1(e).

These are complicated issues and determining the deductible costs is not easy. Therefore, we recommend employers who are uncertain should reach out to their legal counsel or qualified accountant for guidance.

For more legal alerts and resources, please visit our live COVID-19 dashboard


The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

Legal Alert: Dependent Care Assistance Programs, Health FSAs & COVID-19

Updated 04/01/20

COVID-19 lawIn the wake of the COVID-19 pandemic, many employers are dealing with how to handle Dependent Care Assistance Programs (DCAPs) when employees are no longer working and not in need of childcare, or alternatively, an employee’s childcare program/center/provider has closed due to the pandemic.

DCAPs, sometimes referred to as “dependent flex spending accounts” are an employer-sponsored plan to provide the exclusive benefit of dependent care assistance. Under the Internal Revenue Code (IRC) employees can exclude up to $5000 annually from the gross income for dependent care. DCAPs are subject to flexible spending arrangement rules under the IRC.

General Principles

Because of their tax favored status, DCAPs are subject to many regulations. Any common law employee can participate in a DCAP. In order to have dependent care expenses reimbursed by the program the following general requirements must be met:

  • The expense must enable the employee (and their spouse) to be gainfully employed
  • The expense must be for a qualifying individual (a child under the age of 13)
  • The expense must be for care, not education (daycare is acceptable, private school tuition is not)
  • The expense must be incurred in the coverage period (the plan year)
  • The expense must be substantiated

Exclusion from Income

An employee’s exclusion from income for payments under a DCAP in a calendar year is limited to the smallest of the following amounts:

  • $5,000 if the employee is married and filing a joint return or if the employee is a single parent ($2,500 if the employee is married but filing separately);
  • the employee’s “earned income” for the year; or
  • if the employee is married at the end of the taxable year, the spouse’s earned income

The spouse of a married employee is deemed to be gainfully employed and to have an earned income of not less than $250 per month if there is one qualifying individual, or $500 per month if there are two or more qualifying individuals in each month during which they are a full-time student, or is incapable of self-care and has the same principal place of abode as the employee for more than half the year.

Leave of Absence

If an employee takes a leave of absence they may no longer be considered “gainfully employed” and eligible for dependent care reimbursements during their leave. In general, this is determined on a daily basis, however, there is an exception to the “daily basis” rule for certain short, temporary absences (e.g. Emergency Paid Sick Leave) and part-time employment.

This exception is based on the IRS regulations establishing a “safe harbor” under which an absence of up to two consecutive calendar weeks is treated as a short, temporary absence. However, whether an absence for longer than 2 weeks qualifies as short and temporary is determined on the basis of facts and circumstances.

Likewise, when it comes to FMLA, the IRS does not agree that one’s entire absence under FMLA (which guarantees eligible employees up to 12 weeks of unpaid leave for certain purposes) is appropriate as a temporary absence safe harbor, noting that an absence of 12 weeks “is not a short, temporary absence” within the meaning of the regulations.


Reimbursements are subject to the same rules as flexible spending arrangements (FSAs). The period of coverage must be 12 months unless there is a short plan year. DCAPs that are underspent lead to forfeited money, unused contributions cannot carry over from year to year. DCAPs are not subject to COBRA and the participant has no right to coverage after their plan participation terminates. Employers can provide for a spend-down provision in their plan documents to allow former employees to receive reimbursement through the end of the plan year in which they terminated employment and coverage. If the plan document does not provide for this spend down, the funds are forfeited.

Reimbursements During Leave of Absence

Although the employee may not be eligible to reimburse dependent care expenses while on leave, an employee on LOA may be able to continue to participate in (and make contributions to) a DCAP but any reimbursements from the DCAP will still be subject to the gainfully employed rule and would have to fall within the exception for short, temporary absences.

Changes to Elections

Under the cafeteria plan regulations, elections are irrevocable unless a permitted event occurs. For DCAPs this is:

  • A change in status
  • A change in cost and coverage
  • FMLA (employees taking FMLA leave can revoke elections of non-health benefits and reinstate their benefits upon return from leave)
REMINDER: Although IRS rules govern dependent care assistance programs (DCAPs) also known as dependent care FSAs, including the requirement that elections are irrevocable except in the case of a “change event”, an employer is not required to recognize all the IRS permitted election changes when designing their FSA plan. Therefore, if an employee requests to change their dependent care FSA election, employers need to be mindful of:
  • FSA plan document language – must explicitly permit changes to elections due to a change in cost. If it does not, an employer may want to consider prospectively amending their plan to include this change event.
  • Following their plan’s rules to avoid plan disqualification
  • Refunds for dependent care FSA contributions already taken from an employee’s paycheck are not permissible.
Dependent Care Change in Status, or Cost & Coverage Events DCAP Election Change
A new childcare provider is available at a different cost than current provider. Includes someone (e.g. parent, older sibling) agreeing/able to watch the child for free. Employee may increase or decrease election amount consistent with change in qualified dependent care expenses. Employee may cancel the election if child is now being cared for at no cost.
Enrolling child at a childcare provider closer to home or new work location. Employee may increase or decrease election amount consistent with change in cost.
An employee or their spouse has a new work schedule (including to or from part-time status), and a different number of hours of childcare are required. Employee may increase or decrease election amount consistent with change in cost. 
A child who wasn’t previously enrolled in childcare now needs a childcare provider due to schools being closed. Employee may enroll in dependent care FSA. Or increase their election if they are enrolling an additional child not previously enrolled in childcare.
Child’s daycare closed Employee may decrease or cancel their election.

It is likely that many of the reasons an employee no longer needs childcare as the result of the COVID-19 pandemic would allow them to change their DCAP contributions, potentially reducing them to zero dollars, particularly if their child has been pulled from care (change in cost and coverage), or they are taking FMLA leave (including newly created FMLA leave under the new Families First Coronavirus Response Act).

Therefore, employers should be lenient and allow employees to change their DCAP contributions within the above scenarios. Employers with employees who are laid off (not expected to return to work) should consult with counsel to see if their plan documents allow for a spend down, or if that change can be made mid-plan year.

Health FSA reminder

Similar to DCAPs, health FSA elections generally are irrevocable and the IRS only permits mid-year changes when an IRS approved qualifying status change has occurred. Any change in employment status of the employee, spouse or dependent that affects eligibility for the health FSA is a qualified status change and the change in the election must be on account of the qualified status change.

REMINDER: A health care FSA may (but is not required) to permit an employee to change their health FSA election for IRS permitted qualifying change in status events.  Employers should refer to their FSA plan documents to determine which events their plan recognizes.
Change in Status Events Health FSA Election Change
Spouse (or dependent) loses health insurance coverage Employee may increase election amount
Employee changes from FT to PT Employee may revoke election if the change affects eligibility for the health FSA (Note: Employee may lose coverage automatically when hours change to PT.) COBRA paperwork may need to be provided if the account is underspent. (The health FSA balance is equal to or more than the amount of FSA premiums charged for the remainder of the plan year.)
Employee is on layoff or furlough If the employee stops getting paid, the FSA technically ends. COBRA should be offered to continue the FSA. The employer may keep the FSA active by providing contributions for the employee, having the employee send payments into the employer, or catching up the contributions upon return.
Employee is on an unpaid, unprotected leave of absence (e.g. not FMLA) If eligibility is lost, employee may revoke election. COBRA paperwork may need to be provided if the account is underspent.
Employee is on FMLA Employee may revoke election for the period of coverage provided for under FMLA (or the employer may allow the employee to continue coverage but discontinue contributions during the leave period.)
Termination of employment – employee Employee’s coverage ends. COBRA paperwork may need to be provided if the account is underspent.
Termination of employment for spouse, dependent who had health insurance or health FSA. Employee may enroll or increase election
Termination and Rehire Within 30 Days Employee’s elections in effect at termination are reinstated unless another event has occurred that allows a change.
Termination and Rehire After 30 Days Depending on the FSA plan design, the employee may reinstate elections in effect at termination or make a new election under the plan. It is possible, though for the FSA plan to prohibit an employee from re-enrolling in the plan during that plan year.


Legal Alert: Notice Requirements When Making Health Plan Design Changes

This alert was updated on 04/16/20. COVID-19 law

As employers work to stay financially solvent during the COVID-19 pandemic, many are looking to change their health plan designs in order to ensure employees have access to the care they need while balancing the financial impact on the business. For instance, employers may be looking to:

  • Reduce the number of hours to be eligible for benefits to allow employees who are furloughed or working fewer hours to remain enrolled
  • Permit employees to take advantage of the COVID-19 special enrollment period being offered by their carriers

Likewise, the CARES Act, signed into law on March 27, 2020 created changes which may impact an employer’s plan design: 

  • Relaxed the provision for health FSAs, HSAs, HRAs and other accident and health plans to require a doctor’s prescription for over the counter (OTC) medications in order to be considered an eligible medical expense reimbursement and also permits menstrual care products to also qualify as medical care for purposes of reimbursement or tax-free distribution.
  • Permits high deductible health plans (HDHPs) beginning before 1/1/2022 to allow telehealthcare services prior to meeting the deductible without disqualifying their HSA compatibility status. (IRS Notice 2020-15 also allows HDHPs to pay for COVID-19 testing and treatment prior to meeting the deductible.)

The type of plan change contemplated by the employer dictates: 

  1. When notice must be given to employees
  2. Whether approval from their carrier (or stop-loss provider if benefits are self-insured) is needed and;
  3. May require amendments to plan documents.

Note: although a carrier may permit a COVID-19 special enrollment period, currently, because the IRS has not issued additional guidance, employers should continue to follow the law and regulations set-forth in providing Section 125 benefits which require pre-tax premiums to be irrevocable unless the employee experiences a permitted status change event.

It is possible the IRS may be less likely to penalize plan sponsors that allow a special open enrollment given the unprecedented circumstances; however, employers need to be aware that there is still risk and should work with qualified legal or tax advisors if they want to permit employees to enroll on a pretax basis.

The DOL, HHS and IRS announced through a recent Family First Coronavirus Response Act (FFCRA) Frequently Asked Questions (FAQs) that they will not take enforcement action against plans or insurers that adopt modifications to provide greater coverage for COVID-19 diagnosis or treatment. Normally there is a 60-day advance notice to enrollees required for mid-year material modifications to the Summary of Benefits and Coverage (SBC). The agencies have said that distributing a notice is still required but can be made as soon as reasonably practicable, and not required 60-days prior to the change. If the changes will be maintained beyond the federal emergency health declaration period, then the insurance carrier or health plan must comply with all other applicable requirements to updated plan documents or terms of coverage.

The following chart outlines the normal required notice requirements depending on the type of plan change that is being implemented.

Type of Change Notice Requirement Which Plans
Changes to any information found in the Summary of Benefits and Coverage (SBC) which includes deductibles, out of pocket limits, whether or not referrals are needed for specialists, copays, coinsurance, whether or not preauthorization is needed, services the plan does not cover, and what additional services are covered by your plan. Prior to implementing any change that would require an updated SBC, plan participants must be given 60 days advance notice in the form of an updated SBC. This is a firm requirement. This notice requirement is for ALL group health plans, regardless of whether or not they are subject to ERISA.
Modifications to a summary plan description (SPD) that constitute a material reduction in covered services or benefits. For example, a decrease in employer contributions, or a material modification to plan terms. Notice must be provided within 60 days of making the change. Practically speaking, employers should strive to give notice prior to making the change, but under ERISA, they have until 60 days after the change to inform employees. Notice should be provided in the format of a Notice of Material Modification. This notice requirement is only for group health plans subject to ERISA.
All other changes (not a material reduction in benefits and no impact on the SBC) Notice must be provided within 210 days after the end of the plan year, in the format of a Summary of Material Modification (SMM). This notice requirement is only for group health plans subject to ERISA.

Assuming that these changes occur mid-year and that the employer has a Section 125 Plan so that employee contributions are handled on a pre-tax basis, depending on the change being made to the benefits and/or contributions, the employee may be able to:

  • Drop coverage for themselves and any covered dependents.
  • Not change which dependents are being covered, except to delete coverage for themselves and all covered dependents.
  • At the employer’s decision, employees (and covered dependents) could choose a different plan option assuming more than one plan is offered.

Mid-year changes in benefits and/or contributions due to the consistency rulewould not trigger either a full or partial open enrollment.

If an employee’s spouse or dependent child under age 26 was to lose coverage due to a layoff or furlough at their employer, then this would be a change in status event that would allow the employee to add dependents onto their plan.


The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such.  Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.