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What is proration?
Proration is a process where an amount of money is adjusted based on how long is left in a policy period. Money can be prorated monthly, quarterly, or daily.
Why does proration happen?
When it comes to your benefits plan, there are two reasons proration may happen:
You started in your role after the policy period started
You experienced a Qualifying Life Event (QLE) after the policy period started
What money is prorated?
Great question! Your employer decides if money is prorated and what is prorated. This may include:
Flexible dollars (extra money your employer gives you to put towards your benefits)
Insurance premiums (the amount of money you pay for your benefits)
Spending account allocations (money or flexible dollars you or your employer put into accounts like a Lifestyle Spending Account)
Health Savings Account (HSA) employer contributions (money your employer puts into an HSA for you)
Keep in mind your employer’s plan design is unique, and it’s possible not everything on this list will apply to you.
How does proration work?
Proration is calculated based on a few different factors. We take into account:
Important dates like when you were hired or experienced a QLE and when your policy period started
The total flexible dollars, insurance premiums, spending account allocations, or employer HSA contributions for the entire policy period (if applicable)
Whether money is prorated monthly, quarterly, or daily
Example please!
Proration can seem complicated, but it doesn’t need to be! Consider the following two examples:
Example one:
Imagine you started at a new company on July 1st (congrats!). The policy period started on January 1st, and your employer gave everyone $1000 in a Lifestyle Spending Account (LSA). Because you were hired halfway through the policy period, the amount of money in your LSA is prorated to half the amount ($500).
Example two:
Imagine your spouse lost coverage in their own benefits plan halfway through your policy period, so you added them to your plan. You have a Health Savings Account (HSA) that your employer contributed $750 to at the beginning of your policy period. With your spouse added to your plan, you now have family coverage and are eligible for a total of $1500 in employer HSA contributions. Because you already received $750 at the beginning of the policy period, you’re only eligible for an extra $750 ($1500 - $750) in employer contributions, and because it’s halfway through the year this extra $750 is prorated to half the amount ($375). This means you get a total employer HSA contribution of $1125 for the year.
Tip: Learn more about how proration is calculated.