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Understanding the Consolidated Appropriations Act, 2021

It is no surprise that with everything happening in 2020, we would round out the year with more complicated legislation about employee benefits. We are thankful for the folks in Washington who worked diligently to bring the Consolidated Appropriations Act, 2021, to the table. It will extend many of the conditions and modifications we were given in 2020 regarding our FSA and Dependent Care accounts. Now, more than ever, it seems, we Americans need help, and we are relieved that our Congress and President passed the legislation early this week.

Earlier this week, Medcom's Senior Legal Counsel, Michelle Barki, hosted a webinar detailing some changes and what they mean for consumers in the coming year. We are summarizing those details here, but you can view the recording via our YouTube channel. 

The Basics of the Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act, CAA for short, recognizes we still are reeling from the effects of the Coronavirus. In states like California, ICU availability is at a critical level, and beds may be in short supply in many other parts of the country after the holidays. Also, some states are still in some form of restricted status, slowing down their populations' regular day-to-day activities to prevent the spread. The Act also considers that some individuals remain afraid to visit doctors, dentists, vision care specialists, or participate in elective procedures.

Now, let's talk about what the CAA permits employers and employees for 2021. Below are the permissions given to employers at their discretion. This means each company may choose to allow these adjustments to its employees or choose to keep everything the same.

  • Carryover unused FSA balance from plan year ending in 2020 to 2021, regardless of the amount remaining and is available to the end of the 2021 plan year
  • Extend Grace Period to 12 months
  • Allows participants who terminated in 2020 to continue receiving reimbursements of unused money through the end of the plan year
  • DCAP: increase the maximum age to 14 for those who aged-out during the pandemic

The CAA does not stop there with allowances. The authors of this legislation understand the financial effects from COVID-19 will last, and provisions should be offered for a longer time. To make sure these are allowed, they also included the following permissions for 2021-2022:

  • Carryover unused FSA balance from plan year ending in 2021 to 2022, regardless of the amount remaining and is available to the end of the 2021 plan year
  • Extend Grace Period to 12 months in 2021
  • Permits participant who terminated in 2021 to continue receiving reimbursements of unused money through the end of the plan year
  • DCAP: increase the maximum age to 14 for those who aged-out during the pandemic
  • Prospective modification of election amounts for health plans and DCAP in 2021

The above-listed modifications mirror what is allowed for 2020 but acknowledge the anticipated struggle for many Americans.

Plan Documents

According to the IRS, it is crucial to note that an employer who allows changes or modifications to their FSAs or DCAP accounts MUST adopt amendments to their Plan Documents. Nonetheless, employers have plenty of time to make those adjustments.

  1. Plan years ending in 2020 have until December 31, 2021, to amend documents
  2. Plans ending in 2021 have until December 31, 2022, to amend documents

Recap of Previous Legislation

Of course, we realize it is impossible to remember all the changes that occurred this year. We thought it might be helpful to briefly go over the allowances made regarding DCAP and FSAs earlier this year. IRS Notice 2020-29, released in May, gave employers the flexibility to permit employees to make certain mid-year election changes regarding FSAs and DCAP accounts. The changes include:

  1. Make new elections
  2. Revoke an existing election
  3. Decrease or increase election

However, if allowing a decrease of an election, employers should consider those accounts that are overspent and potentially implement some limitations.

Notice 2020-29 also provided Special Enrollment Rights to employees:

  • To make a new election for employer-sponsored health coverage on a prospective basis if the employee initially declined to elect coverage. This is permitted on a pre-tax basis and retroactively, but it is important to check with the carrier to see if they allow the change.
  • To revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis, including changing enrollment from self-only coverage to family coverage.
  • To revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that they enrolled or immediately will enroll in other health coverage not sponsored by the employer.

Why Not?

If you are an employer, certain things to consider when deciding whether or not to allow these changes for your employees. First, are some or all of your employees located in an area that is still under some form of lockdown? Second, what type of plan do you have? Also, how does your TPA handle their fees and changes? All of these items are the tough questions you must answer before making the call. 

Medcom Benefit Solutions knows how difficult and confusing legislation was in 2020, and the end isn't in sight for FSAs or DCAP. We encourage employers to think about all the implications of adopting the changes or choosing to stay the same. How will it best serve your employees and your business? We are here to help. Medcom is happy to answer your questions, provide support and guidance, or manage the changes you decide to implement. Please reach out to us with any questions. We, as always, are happy to serve you.

Thank you for seeing us through a tough year...and for sticking with us in 2021. We are excited to move forward with you and your company.