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IRS Announces 2021 HSA Contribution Limits, HDHP Minimum Deductibles, and HDHP Out-of-Pocket Maximums

The IRS has released the 2021 inflation-adjusted amounts for health savings accounts (HSAs) under Code Sec. 223.

For the calendar year 2021, the annual limitation on deductions under Code Sec. 223(b)(2) for an individual with self-only coverage under a high-deductible plan is $3,600 ($7,200 for an individual with family coverage).

A “high-deductible health plan” as defined in Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage and annual out-of-pocket expense limits (deductibles, copayments, and other amounts, but not premiums) that do not exceed $7,000 for self-only coverage or $14,000 for family coverage.

https://www.irs.gov/pub/irs-drop/rp-20-32.pdf

 

 

IRS provides tax relief through increased flexibility for taxpayers in Section 125 Cafeteria Plans

The Internal Revenue Service today released guidance to allow temporary changes to section 125 cafeteria plans. These changes extend the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.

The guidance issued today addresses unanticipated changes in expenses because of the 2019 Novel Coronavirus (COVID-19) pandemic and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550.

Notice 2020-29 provides greater flexibility for taxpayers by:

• extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.

• expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.

• applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.

Notice 2020-33 responds to Executive Order 13877, which directs the Secretary of the Treasury to “issue guidance to increase the number of funds that can carry over without penalty at the end of the year for flexible spending arrangements.” The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.

https://www.irs.gov/newsroom/irs-provides-tax-relief-through-increased-flexibility-for-taxpayers-in-section-125-cafeteria-plans

DOL Updated Model COBRA Notices and Q&A’s

May 1, 2020
Set out below are Frequently Asked Questions (FAQs) regarding the implementation of various provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA). These FAQs have been prepared by the Department of Labor (DOL).

Updated COBRA Model Notices
In general, under COBRA, an individual who was covered by a group health plan on the day before the occurrence of a qualifying event (such as a termination of employment or a reduction in hours that causes loss of coverage under the plan) may be able to elect COBRA continuation coverage upon that qualifying event. Individuals with such a right are referred to as qualified beneficiaries.

Under COBRA, group health plans must provide covered employees and their families with certain notices explaining their COBRA rights. A group health plan must provide each covered employee and spouse (if any) with a written notice of COBRA rights “at the time of commencement of coverage” under the plan (general notice). A group health plan must also provide qualified beneficiaries with a notice which describes their rights to COBRA continuation coverage and how to make an election (election notice).
Some qualified beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage, such as coverage that is available through the Health Insurance Marketplace (Marketplace). Qualified beneficiaries may be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace) and cost-sharing reductions (amounts that lower out-of-pocket costs for deductibles, coinsurance, and copayments), and may find that Marketplace coverage is more affordable than COBRA. Qualified beneficiaries may also be eligible for Medicare, or have questions about the interaction between Medicare and COBRA.

The DOL has model notices that plans may use to satisfy the requirement to provide the general notice and election notice under COBRA. DOL is now issuing updated versions of the model general notice and the model election notice to ensure that qualified beneficiaries better understand the interactions between Medicare and COBRA.

Q1: Where can I get a copy of the DOL’s newest model notices?
The model general notice and model election notice are available on the DOL website at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra. The model notices are available in modifiable, electronic form. As with the earlier model notices, to use the model properly the plan administrator must complete it by filling in the blanks with the appropriate plan information. DOL will consider the use of the model notices available on its website, appropriately completed, to constitute compliance with the notice content requirements of COBRA.

Q2: I didn’t enroll in Medicare when I first became eligible because I was still employed, but I recently lost my job. Can I enroll in Medicare now after my group health plan coverage ends?
Yes, and there may be advantages to enrolling in Medicare before, or instead of, electing COBRA. In general, if you don’t enroll in Medicare Part A or B when you are first eligible because you are still employed, after the Medicare initial enrollment period, you have an 8-month special enrollment period to sign up for Medicare Part A or B, beginning on the earlier of:

  • The month after your employment ends; or
  • The month after group health plan coverage based on current employment ends.

If you don’t enroll in Medicare and elect COBRA continuation coverage instead, you may have to pay a Part B late enrollment penalty and you may have a gap in coverage if you decide you want Part B later. If you elect COBRA continuation coverage and later enroll in Medicare Part A or B before the COBRA continuation coverage ends, the Plan may terminate your continuation coverage. However, if Medicare Part A or B is effective on or before the date of the COBRA election, COBRA coverage may not be discontinued on account of Medicare entitlement, even if you enroll in the other part of Medicare after the date of the election of COBRA coverage.

Q3: What health coverage pays first if I’m enrolled in both Medicare and COBRA?
If you are enrolled in both COBRA continuation coverage and Medicare, Medicare will generally pay first (primary payer) and COBRA continuation coverage will pay second. Certain plans may pay as if secondary to Medicare, even if you are not enrolled in Medicare.