When managing a health Flexible Spending Account (FSA) under a cafeteria plan, employers often face questions about reimbursement eligibility—especially when employees incur medical expenses before officially enrolling. A common scenario involves new hires who want to submit claims for services received prior to their start date. So, can a health FSA reimburse expenses incurred before a participant’s enrollment?
Short Answer: No.
According to IRS regulations, a participant must be actively enrolled in the health FSA at the time the medical service is provided for the expense to qualify for reimbursement. This rule applies regardless of when the participant is billed or pays for the service.
Key IRS Guidelines on Health FSA Reimbursements
- Coverage Timing Matters:
Expenses must be incurred while the employee is covered under the health FSA. Coverage begins on the enrollment date—not retroactively. - Date of Service Is Key:
The IRS defines the “incurred date” as the date the medical care is provided, not when payment is made or billed. - No Retroactive Claims:
Services received before enrollment (even within the same plan year) are not eligible for reimbursement.
Example Scenario
Let’s say your company has a calendar-year cafeteria plan. An employee is hired in June and enrolls in the health FSA at that time. They later request reimbursement for dental services received in March. Since the services occurred before their enrollment, those expenses cannot be reimbursed under IRS rules.
What About DCAPs (Dependent Care Assistance Programs)?
The same rules apply. DCAPs also require that dependent care services be provided while the participant is enrolled in the plan. Claims for services before enrollment are not eligible.
Best Practices for Employers
- Educate Employees Early:
Include FSA eligibility and reimbursement rules in onboarding materials. - Review Plan Documents:
Ensure your plan clearly outlines coverage start dates and reimbursement criteria. - Encourage Timely Enrollment:
Prompt enrollment helps employees maximize their benefits and avoid ineligible claims.
Health FSAs and DCAPs are valuable benefits, but they come with strict IRS rules. Employers must ensure that only expenses incurred during active coverage are reimbursed. Clear communication and proper documentation can help avoid confusion and ensure compliance.