Continuing Health FSA Funds Through Cobra

Why would a Health FSA participant elect COBRA?

The FSA is a use-it-or-lose-it account, which means you cannot incur new expenses after you are no longer employed with the company with whom you have FSA benefits. An employee may still be able to submit claims for expenses while they were employed. The plan document identifies how much time participants have to submit claims after they terminate employment. Some plans allow the same time as active employees, i.e. 90 days after the end of the plan year. Some plans allow 30 or 60 days after the date of termination to submit claims.

If an employee has contributed more than they have claimed at the time of a qualifying event, an employer subject to COBRA must offer COBRA coverage to qualified beneficiaries. Continuing your FSA through COBRA is a way to access your full FSA funds once you have been terminated IF you are eligible.

For example, during the first six months of the plan year, an employee contributes $1,200 to their Health FSA. They terminate employment on June 30th. The employee incurs no medical expenses before termination. Without electing COBRA, the employee will forfeit the $1,200.

If the employee elects and pays for COBRA coverage they would then be able to use those funds as normal. What is required to elect COBRA?

The following conditions must exist:

• The employer must be subject to COBRA.
• The employee must elect and be participating in the Health FSA.
• There must be a qualifying event, such as a termination of employment.
• At the time of the termination of employment, the employee must have claimed less than
  they’ve contributed. (They must have underspent their account.)
• The employee must make a COBRA election.
• The employee must make COBRA payments.

Electing to Continue the FSA Through COBRA

If you are eligible for COBRA, you will receive a COBRA election form in the mail explaining the insurance plans offered to you. If you are eligible for continuing your FSA through COBRA, that will also be listed under the plans. (NOTE: You can waive the insurance plans and accept the FSA under COBRA). For information on how to elect COBRA online, please refer to our article Accessing the COBRA Online Portal.

Once you elect the FSA under COBRA, you will be responsible for paying a premium every month, which is equal to your previous payroll contributions with your company. Payments for FSA under COBRA are made the same way that insurance premiums under COBRA are made. Please refer to your COBRA paperwork for how to make payments. 

What is the Qualified Beneficiary’s remaining annual limit under a Health FSA when COBRA is elected?

IRS COBRA regulations state that, to the extent that an FSA is obligated to make COBRA coverage available to a qualified beneficiary, all of the COBRA rules apply in the same way that they apply to coverage under other group health plan, including the rule for how plan limits on coverage apply to someone receiving COBRA coverage.

A Qualified Beneficiary's entire annual election must be available to them while they are continuing to participate under COBRA.

Once I have enrolled in COBRA to continue my FSA, how do I use my funds?

Electing through COBRA to continue your FSA allows you to incur new expenses through the end of the year. You can continue using your Rocky Mountain Reserve benefits debit card, or your can submit claims for those expenses. For information on how to submit a claim, click here.

Are Carryovers from prior years included in the remaining annual limit that may be continued by a COBRA election?

Yes, carryover amounts are included in determining the amount of the benefit that a qualified beneficiary is entitled to receive during the remainder of the plan year in which a qualifying event occurs.

Is a Carryover amount taken into account when determining the COBRA premium?

No, IRS guidance confirms that carryovers are not counted for purposes of determining the COBRA premium. Rather, the applicable premium must be based solely on the sum of the employee’s salary reduction election for the year and any nonelective employer contribution.