Q: Dear Gina: A participant asked me a question the other day and I could not articulate a good answer, so I’m asking the expert. What is the difference between a grace period and run-out period in an FSA or HRA?
A: A good way to remember the difference is that one has to with the length of time you can incur claims and the other is the length of time you have to submit claims. A grace period is an additional period of time when you can incur more claims. For example: An FSA with a 2.5 month extended grace period gives the participant an extra 2.5 months to incur more claims to reduce an unused balance from the prior year. Another way to look at it is instead of a 12 month plan, it’s now a 14.5 month plan.
During a run-out you cannot incur more claims, but rather you have additional time to submit claims that were incurred during the plan. Example: let’s say you have a calendar year plan. On December 31st you go to the emergency room and incur a bunch of medical expenses. The hospital needs to send those claims to your insurance company and your insurance company then bills you for your patient responsibility. A run-out allows more time for this process to take place and for you to receive the insurance Explanation of Benefits forms to submit to your FSA or HRA plan for claim reimbursement. After the run-out period expires, the plan year is closed and your window of time to submit old plan-year claims ends. Hope that clears it up for you!
– Gina