by admin | Jul 30, 2026 | Blog
If your company offers a Health Flexible Spending Account (Health FSA), you may be wondering whether employees who leave the company must be offered COBRA continuation coverage. The short answer is yes, in most cases. However, Health FSAs have special COBRA rules that can make compliance much easier than it is for medical plans.
What Is a Health FSA?
A Health FSA allows employees to set aside money from their paycheck on a pre-tax basis to pay for eligible healthcare expenses.
For example, an employee might elect to contribute $2,000 for the year and use those funds for medical expenses such as copays, prescriptions, or deductibles.
Does COBRA Apply to a Health FSA?
Generally, yes. A Health FSA is considered a group health plan, which means it is usually subject to COBRA requirements.
This means employers must:
- Provide COBRA notices when required.
- Offer continuation coverage after certain qualifying events, such as termination of employment.
- Follow COBRA administration rules.
However, most Health FSAs qualify for special rules that limit an employer’s COBRA obligations.
When Can a Health FSA Use the Special COBRA Rules?
A Health FSA can receive special COBRA treatment if:
1. Employees Cannot Receive More Than They Elect
The maximum amount available under the Health FSA cannot be more than:
- Twice the employee’s annual contribution, or
- The employee’s contribution plus $500, if greater.
Most traditional Health FSAs meet this requirement.
2. Employees Have Access to Major Medical Coverage
Employees eligible for the Health FSA must also be eligible for your company’s major medical plan.
This requirement is usually easy to satisfy if both benefits are offered to the same employees.
3. COBRA Premiums Cover the Cost of the Benefit
The cost of COBRA coverage must generally be equal to or greater than the maximum benefit available under the Health FSA.
Most employee-funded Health FSAs meet this rule automatically.
What Are the Benefits of the Special COBRA Rules?
If your Health FSA meets these requirements, you may be able to:
End COBRA at the End of the Plan Year
Unlike medical coverage, which may continue for up to 18 months or longer, Health FSA COBRA coverage can typically end when the current plan year ends.
Skip COBRA for “Overspent” Accounts
You do not have to offer COBRA if the employee has already used most or all of their Health FSA funds.
For example:
- Annual Health FSA election: $2,000
- Claims already reimbursed: $1,900
- Remaining balance: $100
If the employee would need to pay more than $100 in COBRA premiums for the rest of the year, the account is considered overspent, and COBRA generally does not have to be offered.
Key Takeaway
Most Health FSAs are subject to COBRA, but they usually qualify for special rules that reduce the employer’s responsibilities. In many cases, COBRA coverage only needs to be offered through the end of the plan year, and coverage may not be required at all for employees who have already spent most of their Health FSA funds.
By understanding these rules, employers can stay compliant while avoiding unnecessary COBRA administration.
Source: Thomson Reuters
by admin | May 14, 2026 | Blog
Yes—in many cases, you should. If an individual expects to receive COBRA coverage, even if they were never enrolled in your plan, you are generally required to provide a COBRA Notice of Unavailability explaining why they are not eligible.
When Is a Notice of Unavailability Required?
You must send this notice when:
- A qualifying event is reported, but the individual is not entitled to COBRA, or
- A request for a COBRA extension (disability or second event) is denied
Importantly, eligibility—not enrollment—doesn’t determine whether the notice is needed. If someone reasonably expected coverage, the notice applies.
Who Should Receive the Notice?
The notice must go to the individual expecting COBRA coverage, not necessarily the person who reported the event.
Example: If an employee reports a qualifying event for their child who was never covered, the child—not the employee—should receive the notice.
What Should the Notice Include?
The notice must be:
- Written in clear, easy-to-understand language
- A specific explanation of why COBRA is unavailable
- Tailored to the individual’s situation
Include:
- The qualifying event (or request)
- The reason coverage is denied (e.g., not enrolled in the plan)
- Contact information for questions
Timing Requirements
Provide the notice within 14 days after the plan administrator receives notice of the qualifying event or request—the same deadline as a COBRA election notice.
How Should It Be Delivered?
Use a method reasonably calculated to ensure receipt.
Best practice: send via first-class mail, though hand delivery and compliant electronic delivery are also acceptable.
Key Takeaway
Even if someone isn’t covered under your plan, you must send a COBRA Notice of Unavailability if they expected coverage. Doing so within the required timeframe helps ensure compliance and reduces potential risk for your organization.
Source: Thomson Reuters
by admin | Nov 24, 2025 | Blog
If your business has fewer than 20 employees, you may qualify for COBRA’s small employer exception—but only if you count employees correctly. Missteps can lead to penalties and unexpected COBRA obligations.
Who Should You Count?
- All Employees, Not Just Plan Participants
Include everyone working for all employers maintaining the plan.
- Only Common-Law Employees
Exclude independent contractors and board members unless they meet IRS common-law criteria.
- Part-Time Employees as Fractions
Count based on hours worked compared to full-time status.
- Employees of Related Entities
Controlled group rules require counting employees of related companies and successors.
- Employees Outside the U.S.
Foreign entities and overseas employees count if part of the controlled group.
Why It Matters
Incorrectly applying the exception can result in lawsuits, penalties, and COBRA coverage obligations. When in doubt, consult a benefits expert.
Tip: Use a consistent counting method for the entire year and verify controlled group relationships.
Source: Thomson Reuters
by admin | Oct 30, 2025 | Blog
Under COBRA rules, group health plans may terminate coverage early if a qualified beneficiary becomes entitled to Medicare after electing COBRA. But it’s important to understand what “entitled” really means.
Entitlement vs. Eligibility:
- Eligible means the person qualifies for Medicare (e.g., due to age or disability).
- Entitled means they’ve enrolled in Medicare and are receiving benefits.
Someone who is eligible but hasn’t enrolled yet is not considered entitled—and their COBRA coverage should continue.
When Does Entitlement Begin?
- For Medicare Part A, entitlement is automatic if the person is already receiving Social Security or Railroad Retirement benefits. Otherwise, they must apply.
- Medicare Part B entitlement typically begins when Part A does, or during a later enrollment period.
Important:
Only the individual who becomes entitled to Medicare can have their COBRA coverage terminated early. Other family members on COBRA—like a spouse or dependents—can continue their coverage.
Before ending COBRA early, confirm that the individual is enrolled in Medicare—not just eligible.
Source: Thomson Reuters
by admin | Sep 16, 2025 | Blog
When a former employee receiving COBRA coverage is called to active military duty, employers may wonder how COBRA and USERRA apply. Here’s a quick breakdown of your obligations.
What is COBRA?
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows employees and their families to continue group health coverage for a limited time after job loss or other qualifying events.
What is USERRA?
USERRA (Uniformed Services Employment and Reemployment Rights Act) protects the job and benefit rights of employees who leave work for military service. It includes health coverage continuation—but only for active employees, not those already separated and on COBRA.
Does USERRA Apply in This Case?
No. If the individual is no longer employed and is receiving COBRA, USERRA does not provide additional rights.
Can COBRA Be Terminated Due to TRICARE?
This is a gray area:
- IRS rules suggest COBRA may end if the person gains other group coverage (like TRICARE).
- DOL guidance says COBRA should not be terminated just because TRICARE is in place.
What Should Employers Do?
- Don’t automatically terminate COBRA due to TRICARE.
- Check with your insurer or stop-loss carrier to avoid coverage gaps.
- Document your decisions and stay updated on federal guidance.
USERRA doesn’t apply to former employees, but COBRA coverage should generally continue—even if TRICARE is now active. When unsure, consult legal or benefits experts to stay compliant.
Source: Thomson Reuters
