Switching insurance and Dependent Care FSA
December 7, 2020 6:40 AM   Subscribe

My spouse and I have been covered under his work health insurance since we got married 6 years ago. Now we have looked at our different employers' coverage and decided we want to be insured through my work instead. I have a (hopefully basic) question about the health insurance piece, and a more complicated question about the FSA for Dependent Care.

It's open season at my job, so adding myself and my husband to my work plan is very straightforward.

It is NOT open season for my husband's company. Is him gaining coverage through me a Qualifying Life Event that will allow him to drop his work's coverage? I obviously don't want us to be paying 2 premiums....I've gotta believe this is elementary (otherwise how would anyone ever switch without a gap in coverage?) but I just want some reassurance here.*

Second question about the Dependent Care FSA:
We have been setting aside the max ($5,000) in this account annually through his work. His work's benefit year does not match up with the calendar year (for example, his benefit year runs Sept-Aug). We would like to switch to doing the FSA through my work, where the Dependent Care FSA DOES overlap with the calendar year. I know the $5K limit is a tax thing, so obviously that matters for the calendar year. How do we switch this? Can he cancel his contributions beginning Dec 31st, and then we just jump to mine and it's all good for 2021? Again with the QLE question regarding whether he can even opt out of contributing to his FSA right now, and also just....argh, the math is making my brain hurt! Does the $5K limit matter for the year in which the money is WITHHELD, or the year in which it's DISBURSED? Should we just sign up for $5K through my work and let the IRS penalize us for over-contributing (if indeed we have?) <--- fair warning, I am overwhelmed and this is what I'm leaning towards.

*Husband's HR person is super overwhelmed and sort of prickly, so I'm trying not to go through her for questions if it's not super necessary.
posted by Bebo to Work & Money (3 answers total)
 
Becoming eligible for a new plan is a Qualifying Event reason that allows you to drop coverage elsewhere. The slight hiccup may be in how they define "eligible for a new plan" the vast majority define that as enrolling in another plan (so you would be fine) but SOME define that as actually becoming eligible, so like when you first started that job and he was first eligible to join you. 99% you should be fine here but yes, you will need to just double check with his company HR/Benefits Line as well as finding out what/if proof of this Qualifying Event is needed to make this change.

For DCFSA the IRS cares about what is withheld and spent in the calendar year. So you cannot withhold and spend more than $5000 as a family in the calendar year. If he has already signed up for Sept 2020 - Aug 2021 the easiest way to handle this would be for you to add up how much will be withheld for him in 2021 and you to enroll in 5000-that amount. (please verify this math based on how his paycheck contributions work) Example if his contributions Jan-Aug 2021 will be $3,333 then you should elect to contribute $1,667 for 2021. Then just have him not sign up next year and you sign up for 5000 for 2022.

It is unlikely he can cancel his contributions for this benefit year as he hasn't technically had a Qualifying Event for DCFSA (at least not that you have stated).

That said, the FSA (both dependent care and health care) are completely independent of health insurance. So even if you are choosing to drop all insurance through your husband's employer you can still use FSAs through his employer. Though I agree it is MUCH easier if FSAs run on the calendar year so I'd switch just for that reason.
posted by magnetsphere at 6:56 AM on December 7, 2020


This is my job and I'd like to echo everything magnetsphere says.

re. the qualifying event: You aren't going to get away with not engaging the HR at your husband's work. This is dependent on plan rules. Should be ok but do please confirm. Keep the email high in information and low in emotional detail.
"My spouse's work is in open enrollment right now. We would like to switch our family under her employer's insurance plan for the 2021 plan year.
1. Do our plan rules allow this as a QLE to drop medical/dental/vision coverage mid year to switch to her employer's plan?
2. I would like to keep my DCFSA through the end of our own plan year. Does [Company] have any enrollment dependencies for me to continue the DCFSA without other plan enrollment?
Thank you!"
posted by phunniemee at 9:10 AM on December 7, 2020


That said, the FSA (both dependent care and health care) are completely independent of health insurance. So even if you are choosing to drop all insurance through your husband's employer you can still use FSAs through his employer. Though I agree it is MUCH easier if FSAs run on the calendar year so I'd switch just for that reason.

true but you may only have a certain period of time after he leaves his work to file claims on the FSA and i don't think he can continue to contribute once he isn't doing through payroll deduction.
The last plan i worked with you had 60 days to file claims, but the expense had to be incurred while still employed.
posted by domino at 10:55 AM on December 7, 2020


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