How Employee Benefits Work When a Plan Starts or Transfers Mid-Year
By Simply Benefits Marketing
December 14, 2020
Employee benefits can be complicated – we are here to make it easier.
Can deductibles carry forward? How much can a claim be reimbursed for? What is the annual maximum? What is an eligibility date? Which benefits can be carried forward to the new year? What are spending accounts? — We answer these questions here:
How Do Health Benefits Work When an Employee Joins Mid-Year?
If an employee joins a benefits plan mid-year, then their benefits are not prorated. This means that the new employee will receive their full annual maximum for each line of benefit in their benefits plan to spend from their eligibility date to December 31. On January 1, their maximums reset.
How Do Maximums Work When a Traditional Plan Starts or Transfers Mid-Year?
Let’s say a company enrolled its employees in a Traditional Benefits Plan on September 1 which includes a $1,000 annual maximum for Prescription Drugs (giving an employee $1,000 to spend on Prescription Drugs for an entire year). But, if the company enrolls in a benefits plan mid-year, then there are three ways the maximum amount can be determined for that year. This also depends if it’s a new benefits plan, or if the company is switching its current benefits plan to a new insurance carrier.
1. Maximum is Pro-rated
This means that if the company enrolls its employees in a benefits plan on September 1, and the annual maximum for drugs is $1,000, each employee would have $333.33 to spend on drugs for that year ($1,000/12 = $83.33 x 4 Months = $333.33/Month). This can happen on new plans, or plans moved over to a new insurance carrier mid-year.
2. Maximum is Taken Over
This can happen when an insurance carrier is taking over a plan from another carrier. The new carrier will apply each employees’ remaining balances to their plan. For example, if an employee has spent $600 of their $1,000 drug maximum by September 1 (when the new carrier takes over), the employee’s remaining $400 balance also applies with their new carrier for the remainder of that year.
3. Maximum is Reset
This is when maximums are reset to the full annual balance, regardless of when the new plan takes effect. This can apply for new plans, or for plans taken over by a new insurance carrier mid-year. For example, if a plan is changed over or starts on September 1, and the drug maximum is $1,000, employees will have $1,000 to use between September 1 and December 31. This maximum will reset to $1,000 on January 1 and this is now the total available amount for the entire year (until December 31).
Here we answer other commonly asked questions:
What is a Deductible?
Deductibles are the amount a person (employee) must pay before their insurance policy takes effect. The deductible is taken off the total eligible amount covered for a service by their insurer. For example, if an employee has a dental cleaning and the total service cost was $300, and their plan has a reimbursement amount of 80%, then the employee would pay:
Can Deductibles Carry Forward?
Deductibles don’t carry forward, they reset. This means that regardless of if you paid your deductible or not in the current year, you will still have to pay the set deductible amount the next year. If a company enrolls its employees in a new benefits plan mid-year (and they are not currently enrolled in a benefits plan), the full annual deductible applies regardless of the date their plan starts. However, if a company changes carriers mid-year then there are two options that can happen.
1. Deductible is Waived
This means that the new insurance carrier assumes all employees have already paid their annual deductible and doesn’t include deductibles for the year that plans are taken over, but deductibles will reset the following year.
2. Deductible Based on Employee
This is when the new insurance carrier checks each employees’ plan to see who has already paid their deductibles and applies that to the new plan.
Total Service Cost: $300
Reimbursement Percentage (by Insurer): 80%
Total Amount Eligible for Coverage: ($300 x 80%) = $240
Eligible Amount – Deductible: ($240 – $50) = $190
Total Covered by Insurance Carrier: $190
Employee Pays (Out-of-Pocket): $110
Note: If an employee is enrolled in a Duo or Family plan with a higher deductible, the deductible is broken down on a “first come first serve” basis. For example, if there is a $100 Duo and Family deductible for dental, and one family member goes to the dentist first for a $300 visit, they would have to pay the full deductible themselves, and the rest of their family members on the plan would not have to pay anything towards the deductible.
What’s an Eligibility Date?
An eligibility date is the day that a new employee is able to begin using their company’s benefits plan. This is after their eligibility/waiting period ends which is generally 3 months after employment start date.
Which Employee Benefits Can be Carried Forward to the New Year?
The only employee benefits amounts that can carry forward are Spending Accounts. The amount that can be carried forward is determined by the employer. For example, if an employee has a $1,000 annual maximum and $500 left in their spending account on December 31, the amount that can be carried forward could be the remaining balance, $250, or whatever the employer chooses.
Both include an annual maximum set by your employer that you can use to purchase qualified goods and services throughout the year.
Health Spending Accounts are for topping off partially reimbursed claims or for purchasing goods and services that have reached their maximum on a Traditional Health Plan. HSAs can only be used on health-related items covered under a Traditional Health Plan.
For example, if you have massage therapy covered under your Traditional Health Plan for 80% reimbursement, you can submit the remaining 20% to your HSA. If you have hit your massage therapy maximum under your Traditional Health Plan for the year, you can submit the full cost of the massage under your HSA.
Fun Fact: Some small businesses are turning towards only using HSAs for their benefits. This allows business owners to stay competitive when hiring while keeping costs low. Read more about it here.
Lifestyle Spending Accounts are used for almost anything signed off on by your employer. For example, LSAs can include coverage for gym memberships, ski passes, pet insurance, bus passes, athletic clothing, etc. LSAs are taxable, which means they count towards employees’ income when filing taxes.
LSAs are a great way to offer more flexibility and coverage for employees!
Overall, when it comes to employee benefits that carry forward to the New Year the answer is simple: most don’t. That’s why it’s important to take advantage of your benefits throughout the year, and book that last massage before the New Year!