To COBRA or Not to COBRA - That is the Question

Who is subject to COBRA? Most employers sponsoring group health plans and/or health FSAs through flexible benefits plans are subject to COBRA. Generally, employers with less then 20 employees on at least half of the typical business days in the last calendar year, plus certain church and government plans, are exempt from the COBRA law.

COBRA must be offered to participants and their spouses and dependents in health FSAs and HRAs that lose coverage as a result of a qualifying event. Complete losses of coverage, like termination of employment or a divorce, are a couple of examples where COBRA continuation may need to be offered.

However, existing regulations limit the circumstances in which COBRA must be offered to a participant in a health FSA. COBRA need not be offered for the balance of the plan year in which the qualifying event occurs if: the FSA is exempt from HIPAA certification requirements, i.e., 1) The maximum benefit paid is not greater than two times the salary reduction amount or, if greater, the employee's salary reduction election plus $500; and 2) The employee has other health coverage available through the employer, and future COBRA premiums (contributions to the health FSA equal or exceed potential future benefits (disbursements).

COBRA need not be offered in a subsequent year if: the health FSA is exempt from HIPAA, and contributions for the plan year equal or exceed the annual election amount. By plan design, this could always be the case.

The regulations also emphasize that health FSAs required to offer COBRA must abide by all the other COBRA requirements applicable to group health plans.

Does it affect you? To ensure your employer is in compliance with these regulations, review and update their COBRA forms and procedures now.