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IRS Expands Ability to Enroll in Health Coverage

Posted on May 13, 2020

The IRS has issued guidance that will allow employees to opt in to their employer’s health insurance midyear in response to the coronavirus pandemic.

The agency is providing temporary relief from the cafeteria plan rules that will permit employees to make “prospective election changes (including an initial election) during calendar year 2020 regarding employer-sponsored health coverage, a health [flexible spending arrangement], or a dependent care assistance program,” according to Notice 2020-29, 2020-22 IRB 1, issued May 12.

Some employers have sought this flexibility “due to the nature of the public health emergency posed by COVID-19 and unanticipated changes in the need for medical care,” the notice says.

Under section 125, cafeteria plan elections are generally irrevocable and must be made before the start of the plan year. Reg. section 1.125-4 provides exceptions for when an employee has a change in status or there’s a significant change in the cost of coverage.

The notice says the new IRS relief applies “regardless of whether the basis for the election change satisfies the criteria set forth in Treas. Reg. section 1.125-4.”

Specifically, the new guidance will allow employees to:

  • elect employer-sponsored coverage;

  • revoke an existing health plan election and make a new one, including moving from self-only coverage to family coverage;

  • revoke health coverage if they attest they will enroll in coverage not provided by their employer;

  • change elections regarding their FSA; or

  • change elections regarding a dependent care assistance program.

Employers implementing this relief aren’t required to provide unlimited election changes and can “determine the extent to which such election changes are permitted and applied,” according to the notice. The IRS also said employers may want to limit elections to circumstances in which the employee’s coverage would be increased, such as by switching from self-only coverage to family coverage or from a low-option plan to a high-option plan.

The notice applies earlier relief for high-deductible health plans and telemedicine services retroactively to January 1.

The IRS also issued Notice 2020-33, 2020-22 IRB 1, on May 12, which increases the carryover amount for FSAs to reflect inflation. The notice was issued in response to an executive order that instructed Treasury to increase the amount that can be carried over without penalty at the end of the year for FSAs.

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