QUESTION: Subsequent yr, we plan to amend our firm’s cafeteria plan so as to add a well being FSA beneath which contributors elect a protection quantity for the yr and pay for it with pre-tax wage reductions. There might be no employer contributions, so contributors’ well being FSA wage reductions will equal the elected annual protection quantity. The well being FSA might be supplied to all workers who’re eligible for protection beneath our main medical, dental, and imaginative and prescient plans. We all know that these different plans should supply continuation protection beneath COBRA, however will our well being FSA even be topic to COBRA?

ANSWER: Until maintained by a church, the federal authorities, or a small employer (all employers sustaining the plan will need to have employed fewer than 20 workers on a typical enterprise day throughout the previous calendar yr), well being FSAs should supply COBRA protection to all certified beneficiaries who lose protection attributable to a qualifying occasion and should present all required COBRA notices. However well being FSAs that meet the next three situations are permitted to supply COBRA protection on a extra restricted foundation than different group well being plans:

• Most Profit Situation. The utmost profit payable beneath the well being FSA throughout a yr to any participant can’t exceed two instances the participant’s wage discount election beneath the well being FSA for the yr or, if larger, the wage discount election plus $500. Your well being FSA will fulfill this situation as a result of the annual protection quantity equals the annual wage discount election.

• Availability Situation. Different group well being protection have to be accessible to well being FSA contributors for the yr attributable to their employment. The opposite group well being protection have to be “main medical” or different protection that’s not restricted to excepted advantages (e.g., limited-scope dental or imaginative and prescient protection). Since all workers eligible for the well being FSA can even be eligible in your firm’s main medical plan (and assuming that the entry dates for each plans are the identical), this situation might be glad by plan design.

• COBRA Premium Situation. The utmost premium that could be charged for a yr of COBRA protection beneath the well being FSA should equal or exceed the utmost profit accessible beneath the well being FSA for the yr. Well being FSAs funded solely with participant contributions typically meet this situation as a result of COBRA premiums have to be calculated based mostly on the associated fee to the plan of offering protection, and the associated fee to the plan will typically equal the elected annual protection quantity as a result of workers are inclined to incur claims almost equal to their elected protection quantities.

Most, if not all, well being FSAs will qualify for the particular restricted COBRA obligation, and those who do might restrict COBRA protection in two methods: (1) the utmost COBRA protection interval might terminate on the finish of the yr through which the qualifying occasion happens; and (2) the well being FSA just isn’t required to supply COBRA protection to certified beneficiaries whose accounts are “overspent” as of the date of the qualifying occasion. A person’s account is overspent if the remaining annual restrict (the distinction between the annual election quantity and the reimbursable claims submitted earlier than the date of the qualifying occasion) is lower than or equal to the COBRA premiums that may be required for the rest of the yr.

For extra info, see EBIA’s COBRA guide at Part XI (“When and How Does COBRA Apply to Well being FSAs and HRAs?”) and EBIA’s Cafeteria Plans guide at Part XXII.H (“Which Well being FSAs Qualify for the ‘Particular Restricted COBRA Obligation’ and What Does That Imply?”).

Contributing Editors: EBIA Employees.