IRS Notice 2020-33

Internal Revenue Service Notice 2020-33

The Internal Revenue Service (IRS) issued IRS Notice 2020-33 (Notice) that increases the limit for unused health flexible spending account (health FSA) carryover amounts from $500 to a maximum of $550 (carried over from a 2020 plan year to a 2021 plan year), as adjusted annually for inflation. Notice 2020-33 also clarifies the ability of a health plan to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during the plan year. According to Notice 2020-33, the Department of the Treasury (Treasury) and the IRS intend to revise the proposed cafeteria plan regulations to reflect the guidance in this notice, but taxpayers may rely upon Notice 2020-33 in the meantime.

Increased Carryover Amount

Under the grace period rule, a Section 125 cafeteria plan may permit a participant to apply unused amounts (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during the period of up to two months and 15 days immediately following the end of the plan year. Notice 2013-71 provided a further liberalization, permitting a Section 125 cafeteria plan to allow up to $500 of any unused amount in a participant’s health FSA as of the end of a plan year to be paid or reimbursed to the participant for medical care expenses incurred in the immediately following plan year (the “permissive carryover” rule). A health FSA cannot have both a grace period and a carryover. The permissive carryover does not count against, or otherwise effect, the employee’s salary reduction election during the carryover year. Although the maximum unused amount allowed to be carried over in any plan year has historically been $500, the plan may specify a lower amount as the permissible maximum carryover (and the plan sponsor has the option of not permitting any carryover at all).

Because, by statute, the increase to the health FSA limit is rounded to the next lowest multiple of $50, increases to the maximum carryover amount, as the result of that indexing, will be in multiples of $10 (20 percent of any $50 increase to the health FSA limit). Thus, the maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021 is $550 (20 percent of $2,750, the indexed 2020 limit under Section 125(i)). An employer increasing the carryover amount for the 2020 plan year must adopt an amendment on or before December 31, 2021, which may be retroactively effective to January 1, 2020. Further, the employer must notify all individuals eligible to participate in the plan.

 

Timing for Health Plan Reimbursements

In addition to the increase in the permissive carryover, the Notice clarifies that a health plan, including a premium reimbursement plan in a Section 125 cafeteria plan or an individual coverage health reimbursement arrangement (HRA), may not reimburse medical care expenses incurred before the beginning of the plan year and qualify for exclusion from income and wages under Sections 105 and 106 of the Internal Revenue Code. Medical care expenses are treated as incurred when the covered individual is provided the medical care that gives rise to the expense, and not when the amount is billed or paid. The Notice, however, provides that a plan is permitted to treat an expense for a premium for health insurance coverage as incurred on (1) the first day of each month of coverage on a pro rata basis, (2) the first day of the period of coverage, or (3) the date the premium is paid. Thus, for example, an individual coverage HRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on January 1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.

Section 125 Plan Elections

The Treasury and the IRS simultaneously issued Notice 2020-29, that, among other things, for the remainder of 2020, allows employers to permit mid-year elections to a health FSA under a Section 125 plan, including the ability to make an initial election to fund a health FSA, provided the changes are applied only prospectively. See our Advisor on Notice 2020-29, which addresses the temporary flexibility in response to the 2019 Novel Coronavirus.

5/13/2020

This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.

the outbreak period). See the Appendix for examples.

COBRA

The COBRA continuation coverage provisions generally provide a qualified beneficiary a period of at least 60 days to elect COBRA continuation coverage under a group health plan. Plans are required to allow payment of premiums in monthly installments, and plans cannot require payment of premiums before 45 days after the day of the initial COBRA election. COBRA continuation coverage may be terminated for failure to pay premiums on time. Under the COBRA rules, a premium is considered paid on time if it is made no later than 30 days after the first day of the period for which payment is being made. Notice requirements prescribe time periods for employers to notify the plan of certain qualifying events and for individuals to notify the plan of certain qualifying events or a determination of disability. Notice requirements also prescribe a time period for plans to notify qualified beneficiaries of their rights to elect COBRA continuation coverage.

Under the final rule, the outbreak period must be disregarded when determining the 60-day COBRA election period, the date for making COBRA premium payments, and the date for qualified beneficiaries to notify the plan of a qualifying event or determination of disability. The outbreak period must also be disregarded when determining the date by which a COBRA election notice must be provided to a qualified beneficiary. See the Appendix for examples.

Claims Procedure

ERISA-covered employee benefit plans and non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage are required to establish and maintain a procedure governing the filing and initial disposition of benefit claims, and to provide participants with a reasonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary. Plans may not have provisions that unduly inhibit or hamper the initiation or processing of claims for benefits. Further, group health plans and disability plans must provide participants at least 180 days following receipt of an adverse benefit determination to appeal (60 days in the case of pension plans and other welfare benefit plans).

Under the final rule, the outbreak period must be disregarded when determining the date for participants to file a benefit claim under the plan’s claims procedures and the date by which a participant may file an appeal of an adverse benefit determination under the plan’s claims procedure. See the Appendix for examples.

External Review Process

ERISA sets forth standards for external review that apply to non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage and provides for either a state external review process or a federal external review process. Standards for external review processes and timeframes for submitting claims to the independent reviewer for group health plans or health insurance issuers may vary depending on whether a plan uses a state or federal external review process. For plans or issuers that use the federal external review process, the process must allow at least four months after the receipt of a notice of an adverse benefit determination or final internal adverse benefit determination for a request for an external review to be filed. The federal external review process also provides for a preliminary review of a request for external review. The regulation provides that if such request is not complete, the federal external review process must provide for a notification that describes the information or materials needed to make the request complete, and the plan or issuer must allow a claimant to perfect the request for external review within the four-month filing period or within the 48-hour period following the receipt of the notification, whichever is later.

Under the final rule issued by the DOL, the outbreak period must be disregarded when determining the date by which a participant may file a request for an external review after receiving an adverse benefit determination or final internal adverse benefit determination and the date by which a participant must file a corrected request for external review upon a finding that the request was not complete. See the Appendix for examples.

4/30/2020

This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.

 

 

 

Appendix

The following examples are provided by the DOL and the Treasury to help illustrate the timeframe extensions required by the final rule. For purposes of the examples, the DOL uses a hypothetical end date for the COVID-19 National Emergency of April 30, 2020, and the Outbreak Period ending on June 29, 2020 (the 60th day after the hypothetical end of the national emergency). Note these dates are not the actual national emergency end date or outbreak period end date.

Example 1 – Electing COBRA

Facts. Individual A works for Employer X and participates in X’s group health plan. Due to the National Emergency, Individual A experiences a qualifying event for COBRA purposes as a result of a reduction of hours below the hours necessary to meet the group health plan’s eligibility requirements and has no other coverage. Individual A is provided a COBRA election notice on April 1, 2020. What is the deadline for A to elect COBRA?

Conclusion. Individual A is eligible to elect COBRA coverage under Employer X’s plan. The Outbreak Period is disregarded for purposes of determining Individual A’s COBRA election period. The last day of Individual A’s COBRA election period is 60 days after June 29, 2020, which is August 28, 2020.

Example 2 – Special enrollment period

Facts. Individual B is eligible for, but previously declined participation in, her employer-sponsored group health plan. On March 31, 2020, Individual B gave birth and would like to enroll herself and the child into her employer’s plan; however, open enrollment does not begin until November 15. When may Individual B exercise her special enrollment rights?

Conclusion. In this example, the Outbreak Period is disregarded for purposes of determining Individual B’s special enrollment period. Individual B and her child qualify for special enrollment into her employer’s plan as early as the date of the child’s birth. Individual B may exercise her special enrollment rights for herself and her child into her employer’s plan until 30 days after June 29, 2020, which is July 29, 2020, provided that she pays the premiums for any period of coverage.

Example 3 – COBRA premium payments

Facts. On March 1, 2020, Individual C was receiving COBRA continuation coverage under a group health plan. More than 45 days had passed since Individual C had elected COBRA. Monthly premium payments are due by the first of the month. The plan does not permit qualified beneficiaries more time than the statutory 30-day grace period for making premium payments. Individual C made a timely February payment, but did not make the March payment or any subsequent payments during the Outbreak Period. As of July 1, Individual C has made no premium payments for March, April, May, or June. Does Individual C lose COBRA coverage, and if so for which months?

Conclusion. In this example, the Outbreak Period is disregarded for purposes of determining whether monthly COBRA premium installment payments are timely. Premium payments made by 30 days after June 29, 2020, which is July 29, 2020, for March, April, May, and June 2020, are timely, and Individual C is entitled to COBRA continuation coverage for these months if she makes payment on time. Under the terms of the COBRA statute, premium payments are timely if made within 30 days from the date they are first due. In calculating the 30-day period, however, the Outbreak Period is disregarded, and payments for March, April, May, and June are all deemed to be timely if they are made within 30 days after the end of the Outbreak Period. Accordingly, premium payments for four months (March, April, May, and June) are all due by July 29, 2020. Individual C is eligible to receive coverage under the terms of the plan during this interim period even though some or all of Individual C’s premium payments may not be received until July 29, 2020. Since the due dates for Individual C’s premiums would be postponed and Individual C’s payment for premiums would be retroactive during the initial COBRA election period, Individual C’s insurer or plan may not deny coverage, and may make retroactive payments for benefits and services received by the participant during this time.

Example 4 – COBRA premium payments

Facts. Same facts as Example 3. By July 29, 2020, Individual C made a payment equal to two months’ premiums. For how long does Individual C have COBRA continuation coverage?

Conclusion. Individual C is entitled to COBRA continuation coverage for March and April 2020, the two months for which timely premium payments were made, and Individual C is not entitled to COBRA continuation coverage for any month after April 2020. Benefits and services provided by the group health plan (e.g., doctors’ visits or filled prescriptions) that occurred on or before April 30, 2020, would be covered under the terms of the plan. The plan would not be obligated to cover benefits or services that occurred after April 2020.

Example 5 – Claims for medical treatment under a group health plan

Facts. Individual D is a participant in a group health plan. On March 1, 2020, Individual D received medical treatment for a condition covered under the plan, but a claim relating to the medical treatment was not submitted until April 1, 2021. Under the plan, claims must be submitted within 365 days of the participant’s receipt of the medical treatment. Was Individual D’s claim timely?

Conclusion. Yes. For purposes of determining the 365-day period applicable to Individual D’s claim, the Outbreak Period is disregarded. Therefore, Individual D’s last day to submit a claim is 365 days after June 29, 2020, which is June 29, 2021, so Individual D’s claim was timely.

Example 6 – Internal appeal, disability plan

Facts. Individual E received a notification of an adverse benefit determination from Individual E’s disability plan on January 28, 2020. The notification advised Individual E that there are 180 days within which to file an appeal. What is Individual E’s appeal deadline?

Conclusion. When determining the 180-day period within which Individual E’s appeal must be filed, the Outbreak Period is disregarded. Therefore, Individual E’s last day to submit an appeal is 148 days (180 – 32 days following January 28 to March 1) after June 29, 2020, which is November 24, 2020.

Example 7 – Internal appeal, employee pension benefit plan

Facts. Individual F received a notice of adverse benefit determination from Individual F’s 401(k) plan on April 15, 2020. The notification advised Individual F that there are 60 days within which to file an appeal. What is Individual F’s appeal deadline?

Conclusion. When determining the 60-day period within which Individual F’s appeal must be filed, the Outbreak Period is disregarded. Therefore, Individual F’s last day to submit an appeal is 60 days after June 29, 2020, which is August 28, 2020.

 

 

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