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)
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, or spending account allocations for the entire policy period (if applicable)
Whether money is prorated monthly, quarterly, or daily
Proration can seem complicated, but it doesn’t need to be! Consider the following two examples:
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).
Imagine your spouse lost coverage in their own benefits plan halfway through your policy period, so you added them to your plan. Each year, your employer gives anyone who has a dependent an extra $400 in flexible dollars. Because you added your spouse halfway through the policy period, the amount of extra flexible dollars you receive it prorated to half the amount ($200).