COBRA does not apply to HSAs because HSAs are not considered medical plans. If an employee elects COBRA …
COBRA does not apply to HSAs because HSAs are not considered medical plans. If an employee elects COBRA for employer-sponsored HDHP coverage, the employer is not required to continue any HSA employer contributions after termination. The employee can make after-tax HSA contributions while on COBRA so long as he or she is HSA eligible.
COBRA does apply to Health FSAs (unless maintained by an exempt small employer or church), and employers must provide all required COBRA notices.
The COBRA regulations provide a limited COBRA obligation for “qualifying” health FSAs. A “qualifying” health FSA is an FSA where the COBRA premium equals or exceeds the maximum benefit under the FSA for the year (in other words, there is no reason for a qualified beneficiary to elect COBRA) and the maximum benefit payable does not exceed 2 times the participant’s contributions for the year (or if greater, the participant’s contributions plus $500). If the employer offers a qualifying health FSA:
- COBRA coverage need not be offered to qualified beneficiaries who have overspent their accounts as of the date of the qualifying event.
- For those with underspent accounts, COBRA must be offered but may be terminated at the end of the year in which the qualifying event occurs, but the qualifying beneficiary is also entitled to any grace period provided under the plan.
Employers with qualifying health FSAs should disclose in the initial and election notices the limited duration of COBRA coverage and that COBRA coverage will be offered only to those with underspent accounts. If the health FSA provides carryovers, the notices should also inform participants that carryovers are not counted for purposes of determining the COBRA premium.