On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the Act). The Act contains a number of provisions affecting employee benefit plans. We have summarized some of the key provisions applicable to health and welfare plans below. See our article on provisions applicable to retirement plans here.
The Act provides new relief for health and dependent care flexible spending accounts (respectively, Health FSAs and Dependent Care FSAs). In May 2020, the IRS released guidance allowing for extended claims periods and mid-year election changes under Section 125 cafeteria plans during 2020. See our article on the topic here. The Act builds on this relief by further providing that:
- unused amounts from participants’ Health FSAs and Dependent Care FSAs in 2020 and 2021 may be carried over into the subsequent plan year (i.e., unused amounts in 2020 can be carried into 2021, and unused amounts in 2021 can be carried into 2022). This is an exception to the “use-it-or-lose-it” rule generally applicable to FSAs.
- FSA grace periods, periods following the plan year allowing extra time to incur eligible expenses, for plan years ending in 2021 or 2022 may be extended to 12 months after the end of the plan year, rather than the generally applicable 2½ months.
- participants may prospectively change their FSA elections for plan years ending in 2021, regardless of whether the participant has incurred a change in status.
- individuals who ceased participation in a health FSA during the 2020 or 2021 calendar year may continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which their participation ceased, including any grace period.
- Dependent Care FSAs may increase the maximum age for eligible dependents (i.e., those for whom a reimbursable expense can be claimed) from 12 to 13 years old for those who “aged out” of eligibility during the last plan year with a regular enrollment period ending on or before January 31, 2020. Employers can also allow employees to submit claims for reimbursement of any unused amounts from this same plan year during the following plan year, applying the new age limit.
While these changes are not mandatory, employers who decide to adopt any of these FSA changes must amend their cafeteria plan documents by the end of the first calendar year beginning after the end of the plan year in which a change took effect (e.g., for changes applicable to 2020, amendments must be adopted by the end of 2021). Plan sponsors should also assess any impact these changes may have on employees’ health savings account (HSA) eligibility.
Student Loan Repayments
The Act extends certain provisions of the CARES Act that enabled employers to provide student loan repayment benefits to employees on a tax-free basis. Generally, under Code Section 127, employers that maintain a qualified educational assistance program can reimburse educational expenses (e.g., tuition, fees, and books) of up to $5,250 annually without including those reimbursements in employees’ taxable income. The CARES Act allowed reimbursements for student loan payments for qualified debt incurred prior to employment to qualify as educational assistance under Code Section 127, but this provision was set to expire January 1, 2021. The Act extends this provision to student loan reimbursements made through December 31, 2025.
Surprise Medical Billing
The Act also aims to remedy the practice of surprise medical billing. This occurs when a patient subject to an emergency situation utilizes an out-of-network healthcare provider that charges excessive costs, and the patient is later surprised by a huge medical bill for the out-of-network services. The Act requires group health plans and insurers to implement procedures to prevent surprise medical billing. Different rules apply for emergency and non-emergency services, but in each case plans and insurers are limited in cost-sharing and other restrictions they can impose. Plans and insurers must also make initial payments or issue denial notices to providers within specified timeframes. The Act also introduces a binding arbitration process for plans and insurers and out-of-network providers to resolve disputes regarding payment for services, and the parties must use median in-network rates to guide their resolution.
These provisions generally apply to plan years beginning on or after January 1, 2022. In the meantime, we anticipate additional guidance on the implementation of these new requirements. Employers will also need to amend their group health plan documents to adopt these new provisions prior to the effective date.
Mental Health Parity Expansion
The Act requires group health plans and insurers that impose a nonquantitative treatment limitation (NQTL) on mental health or substance use disorder benefits to perform and document a comparative analysis of the NQTL’s design and application. Beginning February 10, 2021, 45 days after the Act’s enactment, plans and insurers must make the comparative analysis available to certain federal agencies upon request. Plans and insurers must also make available other related information, including applicable plan provisions and evidentiary standards relied upon to design and apply the NQTLs. If the federal agency finds that the plan or insurer is not in compliance with applicable mental health parity requirements based on the information provided, within 45 days the plan or insurer must specify corrective actions and provide an updated comparative analysis that demonstrates compliance. If the plan or insurer remains noncompliant after the 45-day corrective action period, the federal agency must notify individuals enrolled in the plan of the noncompliance within 7 days. Additional guidance on the implementation of these requirements is expected.
Employers need to assess which provisions under the Act impact their health and welfare plans and take any necessary actions to remain compliant. This may require employers to update plan documents and/or their plan’s administrative practices by the applicable deadline. Employers should also keep an eye out for additional guidance on the implementation of new requirements under the Act.
If you have any questions about this legal update, please reach out to the MMM Employee Benefits & Executive Compensation Team.