When employees made their annual health plan enrollment decisions last fall, no one was expecting the chaos of the COVID-19 pandemic. Many consumers are rethinking the choices they made (or finally giving the elections the proper amount of attention employers have been urging for years). And in light of the current situation, the IRS is giving employers and employees a one-time do-over.

This week, heeding the requests of employer groups, the IRS announced that it would allow employees to make mid-year changes to their health plan. Those who originally opted not to enroll in a plan can now do so, or those who are enrolled in a plan drop it, provided they have alternative coverage options. Alternatively, an employee can decide to switch from one type of plan to another.

The latter could be particularly meaningful to employees who are dealing with a significant decrease in their income and looking for a cheaper alternative.

In addition to changing their health insurance coverage, employees will also be able to change their FSA contributions. Unused FSA contributions are forfeited at the start of the next plan year, which could be a problem for consumers who had previously budgeted for elective care but are now putting it off until the pandemic has subsided.

The IRS is also allowing employers to increase the carryover limit from $500 to $550–or 20% of the maximum FSA contribution limit–and also offer an extended grace period for employees to use up their 2019 carryover balance.

None of these changes are mandatory, and it's up to an employer to decide whether they will offer any or all of the increased flexibility options to employees.

The latest updates follow other tweaks to FSAs and HSAs included in the CARES Act, which expanded eligible items for use with these accounts to include over-the-counter drugs.

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Instant Insights /

IRS to allow mid-year health plan changes

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