Administration of the Health FSA Carryover Provision

For Your Renewal

Because of the requirements of COBRA, and the way in which COBRA interacts with Health FSAs and the Carryover provision, it has been determined that going forward it is necessary to require employees who wish to avail of the Carryover provision to make an active annual Health FSA election for the new plan year. The election can be between the minimum and maximum permitted under the employer’s plan. ABG recommends that employers set this minimum to at least $100 annually for the General Purpose Health FSA or Limited Purpose Health FSA.

Employees who do not make an active election would only be able to submit claims incurred during the plan year that just closed, that have been submitted no later than the end of the Run-out period. Otherwise, in the absence of an active election, balances remaining after the Run-out period will be forfeited.

Advantages of this change:

Reduces Employer’s COBRA Responsibility – Currently if an employee has a Carryover balance but does not have an active FSA election, and experiences a COBRA event, they must be offered COBRA on their Carryover funds. Since this employee does not have a current FSA plan year election the COBRA premium for this benefit is $0. Also, since the employee is not an active FSA participant, the COBRA offering on the funds must be for a full COBRA offering period and not solely through the end of the FSA plan year (as would be the case for a participant with an active FSA election).

This means that terminated employees with no active FSA election but with Carryover funds in an FSA, who accept COBRA, would have access to the Carryover funds through COBRA for up to 18 months (36 months in certain cases), and there would be no COBRA premium to get this access, they would only have to accept the COBRA offer extended to them. Therefore, without the change we are implementing, an employer could be paying for 18 months (or 36 months) of COBRA coverage for this Carryover account. With the change we are implementing, COBRA will be limited to just the current FSA plan year.

Simplifies Billing – There is a monthly administration fee for all employees with active COBRA elections, and those participants are part of the count for FSA billing as well. With the change we are implementing, employers will only be paying administration fees for FSA accounts with active elections.

Supports File Integration with HRIS Systems – The move to requiring employees to make an active election in order to access their Carryover funds will simplify coordination with eligibility files, coming out of an HRIS system, Benefit Enrollment system or Payroll system.

These systems are not designed to communicate terminations for employees without an active election, therefore employees without an active election will not appear on these files causing any status changes to no longer to be communicated for these employees.

With the change we are implementing, this issue will be resolved since only employees active in the HRIS, Benefit Enrollment or Payroll system can also have the Carryover Provision.

Please note that because this will affect the administration of an employer’s Health FSA, ABG will update Plan Documents accordingly. This will be on a complementary basis if this change to the administration of the Carryover Provision is the only revision needed to the employer’s Plan Documents at this time.

American Benefits Group