Health FSA election change question

[jrodgers221]

ERISA has a lot to say about insurance, of course. And cafeteria plans, under which many health plans (traditional) and health plans (FSA) are provided, are regulated by the IRS, so we agree so far. But the IRC and IRS regulations have a lot to say group employer health plans, at least the tax implications. So I don't think the distinction you draw is quite as clear as you suggest.

I have read everything posted to this thread very carefully. I don't think there's too much disagreement about when election changes to an FSA may be made (divorce, death, birth, adoption etc.) I think the main point of contention is the definition of insurance. (And an FSA fits well under a general definition of insurance) from Princeton Wordnet:

insurance: a promise of reimbursement in the case of loss.

In any case, it's mostly a case of semantics.

The most important thing I was trying to get opinions on, though, was whether my employer was breaking the rules by allowing all employees to change their FSA election. Do you agree with me and papogi or with cbg?

 

[papogi]

Whether FSAs are insurance or not is immaterial to what I think is the point of the thread. My understanding of the regs is that the employer should not have allowed any changes to any FSAs in this case. 1.125-4 specifically removes FSAs from changes in the case of cost and coverage changes.

With all that said, FSAs are not insurance in its truest sense, but FSAs are intended to exhibit characteristics of insurance. Section 125 allows employees to reduce their salaries, thereby giving some of their money back to the employer. This technically becomes employer money, and when it is used to purchase health insurance or fund an FSA, it is viewed as the employer's money and goes in tax free under Section 106. When reimbursements are received for medical expenses, it comes out of the account tax free under Section 105. In this regard, FSAs act like regular health insurance. Even though the money might have initially come from the employee as a salary reduction, it becomes employer money through 125. Part of the complication comes from the fact that FSAs are regulated by the IRS, but there are ERISA components, depending upon which angle you look at it. For example, while FSAs are regulated by the IRS, certain FSA plans have Form 5500 filing requirements under ERISA since they are considered an accident and health plan. I only throw this out there to help show why FSAs are an oddball thing: it is insurance, but it's not insurance. Again, this discussion about "insurance" is immaterial to the original question.

 

[ecmst12]

I know I have read that if your health insurance "open enrollment" season does not coincide with the calender year (as all FSA's are managed by the calander year), then you will be allowed to make changes to your FSA election during that open enrollment time because your health insurance plan could be changing. But I could not find anything on the FSA web site to support this being a valid event to allow enrollment changes. I couldn't find anything specifically addressing it at all though, so I might just have not been looking hard enough.

I really don't see how it has anything to do with you at all though. If you want to report your employer to the IRS, go right ahead.

 

[papogi]

Section 125 calls for FSAs to have 12 month elections, but they don't have to be calendar year, and I know of many employers who have fiscal year flex plans, but they will typically have their employees make regular health insurance elections and FSA elections at the same time. Incidentally, it's a bit easier from a reporting standpoint (particularly with employees completing form 2441 on their taxes if they have a DC account) to have a calendar year FSA, but it's possible otherwise.

1.125-4 allows employees to change their 125 elections if they make a change under another employers health plan (for instance, if your spouse's open enrollment is at a different time than your is). Note that this portion in 1.125-4 still does not apply to health FSAs, however.

 

[ecmst12]

1.125-4 allows employees to change their 125 elections if they make a change under another employers health plan (for instance, if your spouse's open enrollment is at a different time than your is). Note that this portion in 1.125-4 still does not apply to health FSAs, however.

That must be where I was getting confused.