IRS Relaxes Restrictions on Making Mid-Year Health Coverage Changes

Under normal circumstances, employees are typically only able to elect health coverage during open enrollment each plan year, unless the employee experiences qualifying life events.  On May 12, 2020, the IRS issued IRS Notice 2020-29, which suspends the federal rule limiting mid-year plan changes.  Notice 2020-29 allows employers to amend Section 125 plans to permit mid-year changes to coverage for 2020.

Examples of mid-year changes employers may permit include:

• Enrolling in the plan if coverage was previously declined.
• Switching between higher and lower-cost health plan options.
• Switching from coverage levels, e.g., moving from employee and family coverage to individual employee only coverage.
• Increasing or decreasing the amount of contributions allocated to a flexible spending account.
• Dropping health coverage if the employee has other comprehensive coverage, or may obtain coverage immediately through a spouse or marketplace.

In addition to flexibility with plan elections, Notice 2020-29 allows health FSA grace periods that expire in 2020 to be extended through December 31, 2020, providing employees more time to set aside funds for medical expenses that may have been impacted by the COVID-19 pandemic.

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