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:
- When notice must be given to employees
- Whether approval from their carrier (or stop-loss provider if benefits are self-insured) is needed and;
- 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 rule, would 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.
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