How COBRA Applies to FSAs 3 Questions Answered

Recently, we’ve been receiving a number of questions about COBRA and its rules and regulations as well as how it applies to FSAs, so we wanted to briefly answer a few questions about who should be offering COBRA, why an employee would elect to COBRA their FSA, and how the FSA Carryover factors into the equation.

#1 Should I be offering COBRA, and, if so, to whom?

If you are a COBRA-qualified employer offering a Health FSA, you are required to offer COBRA continuation to qualified beneficiaries (terminated employees and their dependents).

COBRA applies to employer-sponsored group health plans including medical, dental, vision, FSA, HRA, and Employee Assistance Programs (EAPs). Similar to other health plans, employers are required to offer employees experiencing a loss of eligible employer coverage COBRA coverage of up to 18 months (including renewing elections for the following plan year) unless you qualify for a special exception that limits your COBRA obligations.

If your group qualifies for the special exception, then you are only required to offer COBRA coverage to employees who have a positive balance. Additionally, coverage may be terminated for these employees at the end of the plan year in which the loss of coverage occurs.

#2 Why would an employee elect to COBRA their FSA?

Any employee who elects to COBRA their FSA coverage will make non-deductible (after-tax) contributions to their FSA account.

Since there is no tax-advantage, most qualified beneficiaries will only elect to COBRA their FSA so they can maintain eligibility while they incur expenses and request reimbursement for any previously unspent pre-taxed dollars.

#3 Is the FSA Carryover considered when determining COBRA benefits?

For employers that offer the FSA Carryover, COBRA is required if the balance of a qualified beneficiary’s FSA account plus any carryover funds exceed their reimbursements for the plan year.

However, because the carryover funds were paid by the previous year’s pre-tax contributions, the carryover amount is not included when calculating their monthly premium.

The maximum COBRA premium for FSA coverage is calculated based on an employee’s annual coverage amount under the FSA (including both employee and employer contributions).

We’d love to help

Employers are facing increasingly complicated business and benefit regulations, and GGA knows that the continually changing employee benefit environment is only part of the puzzle.

We have trained COBRA administrators dedicated to keeping your COBRA plan in compliance and to giving you peace of mind.

If you would like GGA to assist you with compliance in one of the federal government’s most stringent laws, please request a proposal.

Disclaimer: The information provided on this website is general in nature and does not apply to any specific U.S. state except where noted.

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