Health FSA election change question

[jrodgers221]

What is the name of your state? VA

My employer, a Virginia municipality, has 3800 employees. The municipality decided to change its health plan in the middle of its fiscal year. Prior to the change it offered BCBS and Kaiser. Kaiser was retained, and BCBS was dropped and Cigna was added. Employees covered by BCBS were offered the choice of changing to Cigna, changing to Kaiser, or waiving coverage. All employees were invited to change their FSA election, whether or not they had changed coverage. The new plan, Cigna, was a little bit more expensive for employees than BCBS in terms of copays, and some doctors were not included in the Cigna network that were in the BCBS network, and also some that were not in BCBS were in Cigna.

My FSA election for the year is $5000. I have submitted, and been reimbursed for, $5000 in claims already. I asked to revoke my election, and not have the FSA premiums deducted from my pay. My employer has refused to change the election, though my employer said that it would have reduced my election had my claims been less than my premiums paid to date, about $2500. I have examined the Summary Plan Document for the cafeteria plan carefully, and can find no mention of such a situation. My understanding, however, is that the qualified nature of a cafeteia plan requires the employer to have a substantial risk of forfeiture, which they seem to be evading in my case.

A separate matter is whether the municipality has endangered the qualified nature of the cafeteria plan by allowing everyone to change their election. The SPD and IRC 1.125-4(f) specifically prohibit changes in an FSA election for reasons of changes in cost. This does not even take into account the fact that the municipality allowed people to change their FSA election who had no change of any kind (those who were on Kaiser or who had previously waived coverage).

My questions: Must the municipality allow me to revoke my election? Has the municipality violated the rules governing cafeteria plans? Do I have a Qui Tam case?

Thanks very much.

 

[ecmst12]

Um....you want to stop contributing money to an account that you're currently negative $2500 in? And you think your employer should have to eat that $2500? And you're surprised when they told you no?

What is WRONG with people!

IF you had been terminated prior to the end of the plan year, then your employer would have had to eat any claims to the FSA paid out of un-earned funds. You were not terminated. You can't just ask to not have to pay back (pre-tax!) the rest of the money that you already spent!

Whether the employer should or should not have allowed employees to change their election has nothing whatsoever to do with the fact that you are not going to be able to get out of paying back the rest of your election. They were probably just offering the employees a courtesy because of the health plan change, they might have needed to increase their election to cover their costs. It must be legal or the vendor administrating the FSA wouldn't have allowed it. The health plan change was likely a "qualifying event" allowing employees to change their elections.

If you want the full list of rules governing these accounts (and there are a LOT), Google Flexible Spending Account and check out what the IRS has to say. I'm going to continue to marvel at the level of selfishness that people are aspiring towards these days.

 

[jrodgers221]

Thanks, that's really helpful.

This was a real question, and actually, I think your insulting tone is a far worse fault than any selfishness on my part.

To set the record straight: according to 1.125, FSAs are "health and accident insurance plans." An employee trades a certain amount of income for the right, within a period of time, to claim reimbursement for medical expenses.

An FSA is NOT a deferred compensation plan. If it were, you would have to pay FICA/Medicare on the money, which you don't, because it is MEDICAL INSURANCE.

If my employer provides medical insurance as part of my compensation, and my claims are more than my premiums, should I have to repay the amount of claims over the amount of the premiums? Of course not.

Also to set the record straight--the more its employees contribute to the FSA, the less the municipality has to in payroll tax itself, and in pension contributions. The municipality allowed its employees to raise their election for two reasons--they wanted to deflect criticism for dropping good insurance for worse insurance, and they wanted to save some money.

"It must be legal or the vendor" wouldn't have allowed it? Are you serious? Go read some of the old posts here about what employers do with their FSA's--they break the rules all the time. I think the more likely explanation is that the vendor's contract with the municipality says that the municipality is responsible for vetting the appropriateness of election changes and that the vendor is paid a fee for management and claims processing. In fact, I know this is the case from having read the contract the municipality signed with the vendor.

I claim every tax deduction to which I am entitled, make every insurance claim to which I am entitled, and use my employee compensation (including fringe benefits) to my best advantage. If the rules of the game say I'm not entitled to revoke coverage, I'm perfectly OK with that. You'll forgive me if I don't believe my employer though, I hope.

Go google 1.125-4 IRS and read section f closely, and you will have to agree that the health plan change does not constitute a change in status--especially for the people whose insurance didn't change, as I mentioned in my first post.

In any case, what I'm most interested in finding out is whether my employer has violated the rules of its cafeteria plan, and you obviously have no idea about that. Perhaps another reader?

 

[cbg]

No, the employer has violated no laws.

 

[ecmst12]

A flexible spending account is an account that YOU (or occasionally your employer) contribute pre-tax dollars to. These dollars are then available to spend on qualified healthcare expenditures. It may be considered in some circumstances as a form of health insurance, but really it's just a tax shelter for your healthcare expenses. It was initiated so that people who wouldn't otherwise need to itemize deductions on their tax returns can still be able to get tax relief for these expenses.

When you signed up, you made an agreement with your employer that you would contribute $5k by the end of the year, and in return, they allowed you to receive reimbursement for claims in excess of your contributions to date. Now you want to go back and say that you don't want to contribute anymore, even though you already got that money back, tax free! Besides being rather unfair to your employer, it would also be tax fraud! It is NOT the same as revoking health insurance coverage. The closest paralell I could make would be if you wanted to cancel your healthcare coverage, and get your premium payments refunded, retroactively to 6 months ago, yet not want to reimburse your insurance company for the claims that they paid on you for those 6 months. The difference is, you CAN'T reimburse your FSA any other way then having it deducted from your paycheck, because you can ONLY contribute pre-tax dollars. Does that make any sense at all?

In case you don't believe me, you can look up https://www.fsafeds.com/fsafeds/SummaryofBenefits.asp#WhatIsFSA like I suggested:

• If you or your dependents experience a QLE(qualifying life event), you may enroll or change your current election(s) in the FSAFEDS Program; however, your requested change must be consistent with the event that prompted the election change.
  
• Additionally, you cannot reduce your HCFSA, LEX HCFSA or DCFSA election(s) to a point where the total allotment for the Benefit Period is less than the amount already reimbursed or already in your account.

That's straight from the government's mouth.

I'm generally a nice and tolerant person and don't attack posters easily, your post just left me completely speechless.

 

[moburkes]

Has the rescord been set straight, yet? You don't like the tone when someone is telling you that you want to commit fraud, and they don't agree with it? Oh, brother. Get a life!

FSA is not insurance. Don't even bother to try again.

 

[mlane58]

I agree MO, too bad the OP didn't learn how to read and ask the right questions. FSA is voluntary pre-taxed contribution plan for either healthcare reimbursment or dependent day care and the only time the employer has to make an election change is when there is a life changing event. So quit whinning and pay up.

 

[jrodgers221]

OK, look, you guys have it and me all wrong. My employer allowed all employees to change their election in the middle of the year, regardless of whether they changed their HMO/PPO or not. Some people who experienced no change at all were allowed to change their election. I *did* experience a change--I had a PPO through my employer prior to 1/1/07, and afterwards did not.

I actually think that nobody should have been allowed to change their election as IRS Rev. Reg. 1.125-4(f) plainly prohibits it. Me included. Changes in cost, the reason my employer allowed its employees to change their election, is not allowed by the reg above as a reason for a change in election.

Now, in support of my saying that an FSA is insurance, there is this, from IRS Rev. Reg. 1.125-2:

Q-7: How do the rules governing the tax-favored treatment of employer-provided benefits apply to plans that
are flexible spending arrangements?
A-7: (a) In general. Health plans that are flexible spending arrangements as defined in paragraph (c) of this
Q&A-7 (health FSAs) must conform to the generally applicable rules under sections 105 and 106 in order for the
coverage and reimbursements under such plans to qualify for tax-favored treatment under such sections. Thus,
health FSAs must qualify as accident or health plans. This means that, in general, while the health coverage
under the FSA need not be provided through a commercial insurance contract, health FSAs must exhibit the riskshifting
and risk-distribution characteristics of insurance.

Moburkes: An FSA is certainly not a way for you to save/contribute money for laterhealth expenses, whether it looks that way or not. Also from 1.125-2:

Q-5: May a cafeteria plan include a benefit that defers the receipt of compensation?
A-5: (a) In general. A cafeteria plan may not include any plan that offers a benefit that defers the receipt of
compensation. In addition, a cafeteria plan may not operate in a manner that enables employees to defer
compensation.

Remember that not all compensation is taxable; regular health insurance is not taxable, but is certainly part of one's compensation.

Someone earlier in the thread suggested or implied my intent was to commit fraud. But that's not true; I'm trying to find out what the rules are. Besides, how *could* I possibly commit fraud in this situation? It's up to my employer to stop deducting the FSA premiums from my pay or not. It's not fraud to ask. They changed everyone else's after all, and even invited people to change their election. Invited *me* to change my election. They said in the mass email that people could drop out of the FSA. I honestly didn't know whether they would allow me to revoke my election or not when I submitted the form, though I suspected they wouldn't. Remember, risk-shifting has to occur for the FSA to qualify; the employer must have a risk of loss, as must the employee. There are two basic questions: 1) did my situation (lost health coverage, switched to my wife's, wife's was cheaper) constitute a change-in-status (I didn't, and don't, think it did, but there was a question); can a qualified FSA allow election increases mid-year but not decreases?

I saw the FSAFeds quote a few weeks ago, and thought I was on to something, but their rules aren't authoritative, even if the rule suggests that there is some IRS regulation behind the rule. FSAFeds is certainly not run by the IRS, and it wouldn't be the first time a benefits administrator made a mistake.

Not whining either. Whatever you may think and say from the safety of your cube or study. This person is so shocked by a question of tax/benefits law that they regress to personal insults? I can't imagine the convulsions he/she must experience when cut off in traffic.

You guys ought to relax.

 

[moburkes]

Please tell me where I stated that an FSA is a way for you to save/contirbute money for later healthcare expenses. I'd appreciate it, thanks!

 

[jrodgers221]

My bad--that was ecmst12. The flames were all starting to look the same.

Although you don't think an FSA is insurance--if you don't think it's deferred compensation earmarked for medical expenses, what do you think it is?

Did you read 1.125-2 yet? Pretty conclusive that the IRS considers an FSA insurance.

 

[moburkes]

It exibits the CHARACTERISTICS of insurance and is a health PLAN in what I quickly read. I'm an insurance agent. Please don't try to tell me what is and isn't insurance. Especially when I have a license to sell it in your state.

 

[jrodgers221]

That's great that you're an insurance agent, and I'm sure you know a lot about selling insurance. I'm a financial planner myself. Nice to meet you.

Think about it this way: for $5000/yr in premiums, I get an indemnity policy that will reimburse up to $5000 in expenses. I can modify the policy under certain strict conditions (birth, death, divorce, termination etc. on my or an immediate family member's part). The insurer (employer) cannot revoke the policy. Whether or not a claim is reimburseable is unconnected to how much premium has been paid: I can incur a $5000 expense on the second day of the fiscal year and have it reimbursed, despite the fact that I've only paid in $200 in premiums.

Under no circumstances does the FSA have any cash value whatsoever. In this sense at least, it is more purely insurance than whole or universal life insurance. The FSA only gives the employee the right to reimbursement.

Moreover, if the employee leaves service, neither the employee or the employer is entitled to any restitution for unearned premiums or reimbursed claims in excess of premium paid.

It is, simply, insurance. One that is not commonly sold at the traditional insurance agency, perhaps, but insurance. An "accident or health plan."

Whether you have a license to sell in VA or not is completely irrelevant, of course, since this is a federal thing. Unless I'm missing the point (we live close to each other? you want to hash out the IRC over coffee? What are you saying?)

Are you never wrong about anything or something?

 

[papogi]

1.125-4(f) indicates that pre-tax elections that are associated with regular health plans can be changed due to cost and coverage changes that satisfy the consistency rules (e.g., loss of one plan option allows you to move to another one being offered, and if the pre-tax deduction goes up or down slightly, the participant is allowed to start having the new amount pre-taxed). This seems to be exactly the event the original post was about. I absolutely agree that the poster is not allowed to stop his/her FSA contributions into the account (I know that point has come up in prior posts, and I agree wholeheartedly). However, no participants should be allowed to change their FSA elections. They are allowed to change their pre-tax deductions based on any allowed changes to their regular health elections, but 1.125-4(f) specifically states that the cost and coverage change rules do not apply to FSAs. No employees should be allowed to make any changes to their FSA elections in this case.

 

[jrodgers221]

Thanks papogi.

What do you think about the insurance/not insurance issue? Is an FSA offered under a qualified cafeteria plan insurance in your opinion?

 

[mlane58]

Thanks papogi.

What do you think about the insurance/not insurance issue? Is an FSA offered under a qualified cafeteria plan insurance in your opinion?

An FSA is NOT an an insurance issue, it is a reimbursment account for either heatlcare related expenses or dependent day car expenses. Group employer insurance is regulated by ERISA and FSA's are regulated by the IRS. You can only change your Felxible Spending Account decisions during the year if you have a change in family status i.e. death, birth, divorce, marriage, etc.... Of course you've been told this a couple of times already and fail to listen. No one here is going to tell you what you want to hear.