FAQs: Addressing Consumer Spend-Down Before the CAA Expires
Published on December 6th, 2022
Our recent webinar, FSA’s Billion-Dollar Challenge, was aimed at helping administrators understand the upstream and downstream effects of the 2021 Consolidated Appropriations Act (CAA) expiring at the end of 2022. Jason Lacey, partner at Foulston Siefkin, LLP, and Sandy Gleason, vice president of industry consulting for Alegeus, shared tips for guiding employers and their employees through this transition back to pre-pandemic limits and provisions.
Following their analysis, we received some great questions from webinar attendees. Below, we’re sharing additional insights to further help you and your employers end the year on a positive note – by keeping employees informed and satisfied with their benefits.
What is the 2021 Consolidated Appropriations Act (CAA)?
The CAA created temporary relief rules for FSAs, allowing benefit participants special considerations during an unprecedented time. This meant employers could choose to allow unlimited carryover of unspent FSA funds or an extended grace period for plan years ending in 2020 and 2021. As 2022 comes to end, these pandemic provisions will sunset as well. This means reverting to old rules of either a 2.5-month grace period to use the funds following the end of the plan year, or a $570 (2022 limit) carryover. So, for example, if an FSA account holder has accumulated $3500 in funds, they risk losing some or all of those funds if not spent down prior to the end of the plan year or grace period depending on the employer’s plan design.
The CAA also provided other relief – health FSA spend down for mid-year terminations, dependent care reimbursement for 13-year-olds, election change relief and more. However, the most time-sensitive aspect of the CAA is the unlimited carryover expiration. Employers may be scrambling to ensure employees are aware and are being proactive around spending down FSA funds and determining their 2023 contributions.
Why should you encourage spend down?
By encouraging spend down, you are helping to prevent participants from losing money, increasing employer/participant NPS, encouraging re-enrollment, and even increasing contribution amounts in future plan years. At the same time, you’re helping employers show that they care about their employees. On the servicing side, it reduces the run-out claims filing crunch and the impact on the call center. It also serves as a counterpoint to inflation – as the economy is on everyone’s mind, there’s an opportunity to spend FSA dollars, freeing up money for other expenses like gas.
How can you promote spend down?
A great way to promote spend down is to remind employees to check their FSA balances. Often it can be forgotten about if it is not needed, and many employees may be surprised by how much money has accumulated in their account. It’s also helpful to provide ideas for ways to spend the money – maybe stocking stuffers for dependents like ibuprofen or sunscreen, using their FSA for menstrual products, chiropractor visits, or other items they are likely already planning to buy or could need.
Any suggestions on good language to encourage spending but discourage “stockpiling”?
While one way to spend down your account is to stock up on over-the-counter items, you should be careful to only purchase what you (and your spouse/eligible dependents) would reasonably use during the coverage period. For example: Assume your plan year ends on December 31 and your plan does not provide for the 2.5 month grace period. If you purchase a bottle of ibuprofen on December 1, you/your family could reasonably use all or a portion of the bottle during that month. If, however, you purchase a case of ibuprofen on December 1, your expense may be considered “stockpiling” and would be considered ineligible as you and/or your spouse/eligible dependents would not reasonably be able to use all bottles in that case before December 31.
It should be noted that the IRS has not formally provided a definition of stockpiling, but partners should apply the “reasonable use” test when approving claims.
Did the carryover amount increase to $610?
The carryover amount increased for 2023 to $610, with an annual election maximum of $3,050. The carryover amount for plan years ending in 2022 is $570.
What do you need to know and do right now?
- Find out which of your employer groups have large unspent balances, and what their options are – unlimited carryover, forfeiture only, standard carryover, or grace period
- Connect with prioritized employer groups on the funds at risk for forfeiture
- Learn which communications have already been sent
- Determine a participant communication plan – email, intranet banner, benefits newsletter, etc.
- Share that employer-sent communications have a higher open and read rate (vs. provider-sent)
- Provide ready-to-go email copy
- Recommend one communication each week of December
How can Alegeus help?
Alegeus can work with you to prioritize employers with the most funds at risk of expiration. Additionally, our FSA Spend Down Communications guide (with both email and web banner options) is a great resource we are happy to provide for our partners. Contact your Alegeus representative for the guide today.