COBRA for HRA & FSA: 401 • updated December, 2014

Special rules for funding programs.
If you are required to offer COBRA, and you provide a health reimbursement arrangement and/or a flexible spending account, you may need to offer continuation for these programs as well.

Different programs, different rules. Even though both of these programs provide payment for unreimbursed healthcare expenses, they are treated very differently under COBRA.

COBRA & the Health Reimbursement Arrangement
If you offer an HRA program, you will need to offer this program under COBRA.

If the HRA is a “deductible bridge” only, where your company reimburses all or part of the member’s deductible, you can require that the COBRA qualified beneficiary elect continuation of the medical plan in order to continue the HRA plan (this needs to be spelled out in your HRA document).

The cost of the HRA under COBRA is not a simple calculation. You must estimate the past utilization of the plan to set the rates. For example, if your medical plan has a $2000 deductible, and your company reimburses 100% of the last $500, you cannot simply calculate your liability ($500) divided by 12 to determine the monthly COBRA charge. You must look at the average amount your company paid under the HRA in the past. Let’s assume you paid an average of $132 per person over the past few years the HRA has been in effect. Your COBRA rate will need to be $11 per month ($132 divided by 12).

You are allowed to add up to a 2% administration fee to the monthly HRA COBRA premium.

COBRA & the Flexible Spending Account
FSA programs may be elected under COBRA; however, there are many more rules and requirements for these programs.

COBRA can only be elected if the dollar amount remaining in the employee’s reimbursement account exceeds the amount of COBRA premiums that would be required for the remainder of the FSA plan year. For example, Gemma elected $1200 in deductions for the FSA plan year. She decides to leave the company after 4 months on the plan. She still has $800 to contribute under COBRA for the remainder of the plan year. As long as she has $800 or more dollars remaining of her initial FSA election, she can elect COBRA.

The cost of FSA under COBRA is the amount of the monthly deduction the employee was paying prior to termination. In addition, like healthcare premiums, you can add an administrative fee of up to 2% to these rates.

The longest that an employee can continue their FSA under COBRA is through the end of the FSA plan year in which they qualified for COBRA. For example, if the COBRA plan year runs from January 1 through December 31st, and an employee terminates on April 15th, he can only continue the FSA plan under COBRA through December 31st .

This article is provided for informational purposes only. Please contact your attorney and/or accountant to determine if this information may affect your business. © 2015 GHB Insurance

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