HRE’s number of the day: mid-year medical plan changes

8: Percentage of employers allowing employees to switch to a different medical plan mid-year, per new IRS guidance allowing employers to do so

A new survey of 279 employers from consulting firm Mercer finds that very few employers will allow employees to make mid-year changes to their core medical plans, despite new IRS guidance allowing them to do so because of coronavirus challenges. Overall, though, 47% of employers surveyed indicate they will allow some type of mid-year change—mainly allowing workers to change contributions to a dependent care flexible spending account (43%) and change contributions to a healthcare FSA (29%).

What it means to HR leaders

The IRS said in May it’s giving employers permission to let employees make changes to their health insurance plans because of uncertainties caused by the COVID-19 pandemic. Normally, employees cannot change health coverage options unless it’s open enrollment—or unless they experience a qualifying life event, such as marriage, divorce or the birth of a child.

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The new guidance allows employees to drop out of their health insurance if they have another option, or sign up for insurance if they have not done so; add family members to their plan or switch to a different health insurance plan. The IRS guidance also eases healthcare flexible spending account and dependent-care accounts rules, allowing employees to also make changes to those accounts mid-year.

HR leaders would be wise to react to the new guidance with a mix of empathy and economics, Mercer says. Employers do not have to allow such changes if they do not want to.

It’s understandable that employers are not rushing to allow employees to make core medical changes—and instead are focusing on other easier changes like FSA contributions, says Jay Savan, a partner in Mercer’s health business. That’s because permitting enrollment changes mid-year in core medical plans brings “much greater risk to the sponsor, such as incurring high cost claims and generally enabling adverse selection.”

“It can also have collateral impact on stop-loss reinsurance and other related contracts,” he says. “Our advice to employers is to weigh these risks thoughtfully before liberalizing the terms of mid-year enrollment in medical plans in 2020.”

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