Is Our Health FSA Subject to COBRA?

Is Our Health FSA Subject to COBRA?

by | May 4, 2023 | Blog

QUESTION: Next year, we plan to amend our company’s cafeteria plan to add a health FSA under which participants elect a coverage amount for the year and pay for it with pre-tax salary reductions. There will be no employer contributions, so participants’ health FSA salary reductions will equal the elected annual coverage amount. The health FSA will be offered to all employees who are eligible for coverage under our major medical, dental, and vision plans. We know that these other plans must offer continuation coverage under COBRA, but will our health FSA also be subject to COBRA? 

ANSWER: Unless maintained by a church, the federal government, or a small employer (all employers maintaining the plan must have employed fewer than 20 employees on a typical business day during the preceding calendar year), health FSAs must offer COBRA coverage to all qualified beneficiaries who lose coverage due to a qualifying event and must provide all required COBRA notices. But health FSAs that meet the following three conditions are permitted to provide COBRA coverage on a more limited basis than other group health plans: 

  • Maximum Benefit Condition. The maximum benefit payable under the health FSA during a year to any participant cannot exceed two times the participant’s salary reduction election under the health FSA for the year or, if greater, the salary reduction election plus $500. Your health FSA will satisfy this condition because the annual coverage amount equals the annual salary reduction election. 
  • Availability Condition. Other group health coverage must be available to health FSA participants for the year due to their employment. The other group health coverage must be “major medical” or other coverage that is not limited to excepted benefits (e.g., limited-scope dental or vision coverage). Since all employees eligible for the health FSA will also be eligible for your company’s major medical plan (and assuming that the entry dates for both plans are the same), this condition will be satisfied by plan design. 
  • COBRA Premium Condition. The maximum premium that may be charged for a year of COBRA coverage under the health FSA must equal or exceed the maximum benefit available under the health FSA for the year. Health FSAs funded entirely with participant contributions generally meet this condition because COBRA premiums must be calculated based on the cost to the plan of providing coverage, and the cost to the plan will generally equal the elected annual coverage amount because employees tend to incur claims nearly equal to their elected coverage amounts. 

Most, if not all, health FSAs will qualify for the special limited COBRA obligation, and those that do may limit COBRA coverage in two ways: (1) the maximum COBRA coverage period may terminate at the end of the year in which the qualifying event occurs; and (2) the health FSA is not required to offer COBRA coverage to qualified beneficiaries whose accounts are “overspent” as of the date of the qualifying event. An individual’s account is overspent if the remaining annual limit (the difference between the annual election amount and the reimbursable claims submitted before the date of the qualifying event) is less than or equal to the COBRA premiums that would be required for the remainder of the year. 

Source: Thomson Reuters 

Is Our Health FSA Subject to COBRA?

What do all these employee benefit acronyms stand for?

by | Feb 21, 2023 | Blog

Everyone in the employee benefits field uses acronyms like COBRA, FSA, and CDHC. What do these and other employee benefit acronyms stand for? 

Here’s an explanatory list of common employee benefit acronyms used:

ACA – Patient Protection and Affordable Care Act 

AHP – Association Health Plan 

ASG – Affiliated Service Group 

ASO – Administrative-Services-Only 

ATIN – Adoption Taxpayer Identification Number 

BA – Business Associate 

CDHC – Consumer-Driven Health Care 

CE – Covered Entity 

COB – Coordination of Benefits 

COBRA – Consolidated Omnibus Budget Reconciliation Act 

COLA – Cost-of-Living Adjustment 

CONUS – Continental United States 

DCAP – Dependent Care Assistance Program 

DOL – Department of Labor 

EIN – Employer Identification Number 

EAP – Employee Assistance Plan 

EBHRA – Expected Benefit HRA 

EBSA – Employee Benefits Security Administration 

EEOC – Equal Employment Opportunity Commission 

EFAST2 – ERISA Filing Acceptance System II 

EOB – Explanation of Benefits 

EOI – Evidence of Insurability 

ePHI – Electronic Protected Health Information 

ERISA – Employee Retirement Income Security Act 

FICA – Federal Insurance Contributions Act 

FLSA – Federal Labor Standards Act 

FMLA – Family and Medical Leave Act 

FSA – Flexible Spending Amount 

FUTA – Federal Employment Tax Act 

GHP – Group Health Plan 

HCE – Highly Compensated Employee

HCP – Highly Compensated Participants 

HDHC – High Deductible Health Coverage 

HDHP – High Deductible Health Plan 

Health FSA – Health Flexible Spending Arrangement 

HHS – Department of Health and Human Services 

HIPPA – Health Information Technology for Economic and Clinical Health Act 

HMO – Health Maintenance Organization 

HRA – Health Reimbursement Arrangement 

HSA – Health Savings Account 

ICHRA – Individual Coverage HRA 

IIAS – Inventory Information Approval System 

MCC – Merchant Category Code 

PBM – Pharmacy Benefit Manager 

PCOR Fees – Fees for Patient-Centered Outcomes Research 

PEO – Professional Employer Organization 

POP – Premium-Only Plan 

PPO Plan – Preferred Provider Organization Plan 

QB – Qualified Beneficiary 

QE – Qualifying Event 

QMCSO – Qualified Medical Child Support Order 

QSEHRA – Qualified Small Employer Health Reimbursement Arrangement 

R&C – Reasonable and Customary 

RRE – Responsible Reporting Identity 

SBC – Summary of Benefits and Coverage 

SMM – Summary of Material Modification 

SPD – Summary Plan Description 

TPA – Third Party Administrator 

UCR Rate – Usual, Customary, and Reasonable Rate 

VEBA – Voluntary Employees’ Beneficiary Association 

Is Our Health FSA Subject to COBRA?

What to expect from NueSynergy’s COBRA team

by | Oct 13, 2022 | Blog

NueSynergy’s COBRA team is proud to assist employees and their families with the right to maintain group health benefits for limited periods of time. With 25 years of industry experience, NueSynergy’s COBRA administrators have the knowledge to help employees in the following areas:

  • Track, document and update all COBRA-related events
  • Provide and maintain the necessary documentation to respond to an IRS audit of any COBRA practices
  • Issue administration manuals, establish and collect all plan information, rates, and new plan setups
  • Mail educational COBRA packages to employees, covered spouses and dependents, which includes notification letters, election forms, enrollment forms and beneficiary forms
  • Help with open enrollment and account termination

To learn even more about our COBRA team – whether it’s account set-up or other services – read here.

Is Our Health FSA Subject to COBRA?

Rules for counting employees on COBRA’s Small Employer Exception

by | May 25, 2022 | Blog

A group health plan is not subject to COBRA for any year if all employers maintaining the plan together employed fewer than 20 employees on a typical business day during the preceding year. Here are some general guidelines for which employees must be counted:

  • Count All Employees, Not Just Plan Participants. Be sure to count the number of employees working for all employers maintaining the plan, not just the number of employees covered by the group health plan.

  • Count Only Common-Law Employees. Only common-law employees are counted as “employees” for purposes of COBRA’s small employer exception. Do not count self-employed individuals, independent contractors, or members of a corporate employer’s board of directors, unless those individuals are also common-law employees of the employer. Keep in mind that common-law employee status is not determined solely by a worker’s payroll status, title, or job description but depends on various factors enumerated by the IRS and the courts, including whether the organization controls the manner in which the individual provides services.

  • Count Part-Time Employees. A part-time employee counts as a fraction of an employee. The fraction is equal to the number of hours that the part-time employee works divided by the number of hours that an employee must work to be considered a full-time employee. The number of hours that must be worked for an employee to be considered full-time is determined in a manner consistent with the employer’s general employment practices (but cannot be more than eight hours a day or more than 40 hours a week). You may count employees for each typical business day, or you may count employees for a pay period and attribute the total number of employees for that pay period to each typical business day that falls within the pay period. You also may count part-time employees on an aggregate basis (rather than on an individual basis) by totaling the hours worked by part-time employees and dividing that sum by the number of hours required for one worker to be considered full-time. However, you must use the same method for all employees and for the entire year for which the small employer plan determination is made.

  • Count Employees and Related Entities Outside the United States. The controlled group rules do not exclude entities outside the United States, so employees of a foreign entity must be counted if the entity otherwise qualifies as a member of the controlled group. Similarly, employees working outside the United States must be counted.
  • Count Employees of Related Entities (and Successors). You must count all employees of all entities that are related to your company. If your company is related to another entity, you’ll need to determine whether employees of the related entity must be counted. If so, you’ll also need to include employees of “successors” of those entities, i.e., entities that “result from a consolidation, merger, or similar restructuring.”

The rules for counting employees are complex, and if you mistakenly rely on the small employer exception, the consequences can be significant. Noncompliance can result in lawsuits and penalties, as well as the obligation to provide COBRA coverage to former employees and others without insurance or stop-loss coverage.

Source: Thomson Reuters