When employees or their dependents lose group health coverage due to a qualifying event, COBRA ensures they can continue their health benefits. But what happens when a qualified beneficiary under COBRA relocates outside the service area of their HMO (Health Maintenance Organization) plan?
This scenario is more common than you might think—and it’s essential for employers and HR professionals to understand their obligations under COBRA in such cases.
COBRA Basics: Same Coverage Rule
Generally, COBRA requires employers to offer the same health coverage the qualified beneficiary had before the qualifying event. However, there’s a key exception for region-specific plans like HMOs.
The HMO Relocation Exception
If a qualified beneficiary moves out of their HMO’s service area, the employer must offer alternative coverage—but only if certain conditions are met.
✅ When Must Alternative Coverage Be Offered?
Upon Request: The employer must offer other coverage options within a reasonable time after the qualified beneficiary requests it.
Timing: The new coverage must begin no later than the date of relocation or the first day of the following month after the request.
✅ What Coverage Must Be Offered?
If the employer offers other plans (e.g., PPO or indemnity plans) to similarly situated active employees that can be extended to the new location without extraordinary cost, those plans must be offered.
If no such plan exists for similarly situated employees, the employer must offer any available plan that can be extended to the new location.
❌ What If No Coverage Is Available in the New Area?
If no plan can be extended to the new location without extraordinary cost, the employer is not required to offer alternative coverage.
However, if another controlled group member (e.g., a parent or subsidiary company) offers coverage in that area, it may be obligated to provide COBRA coverage.
Extraordinary Costs Are Not Required
Employers are not required to:
Establish new provider networks.
Create new reimbursement schedules.
Offer preferred provider rates in areas without existing employee presence.
If a COBRA participant moves out of their HMO’s service area, you must be prepared to offer alternative coverage options—but only if they are already available to active employees and can be extended without significant cost.
The IRS recently announced the 2026 limits for Health Savings Accounts (HSAs) and High Deductible Health Plans (HDHPs). HSA contribution and plan limits will increase to $4,400 for individual coverage and $8,750 for family coverage. Changes to these limits will take effect January 2026.
HSAs are tax-exempt accounts that help people save money for eligible medical expenses. To qualify for an HSA, the policyholder must be enrolled in an HSA-qualified high-deductible health plan, must not be covered by other non-HDHP health insurance or Medicare, and cannot be claimed as a dependent on a tax return.
Navigating the complexities of the Family and Medical Leave Act (FMLA) can be challenging, especially when it comes to maintaining health coverage for employees on unpaid leave. This guide will help you understand what to do when an employee on FMLA leave fails to pay their health insurance premiums on time, and how it affects Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and COBRA.
Employer Obligations
Under FMLA, employers must maintain health coverage for employees on leave as if they were still working. This obligation ends if the premium payment is over 30 days late, unless your company policy allows a longer grace period.
Steps Before Dropping Coverage
Before dropping an employee’s health coverage, provide written notice at least 15 days before coverage ends, specifying the termination date if payment isn’t received. Send the notice at least 15 days before the end of the grace period.
Termination of Coverage
Coverage can be terminated retroactively if your company policy allows, otherwise, it ends prospectively at the grace period’s end.
Impact on FSAs, HRAs, and HSAs
FSAs: Employees can choose to continue or revoke their FSA coverage during unpaid FMLA leave. Payment options include pre-pay, pay-as-you-go, and catch-up contributions.
HRAs: Employers must extend COBRA rights to HRAs. Employees can use their HRA balance during COBRA coverage, and employers should calculate a reasonable premium for the HRA.
HSAs: Employees can continue contributing to their HSA during COBRA coverage and use HSA funds to pay for COBRA premiums.
COBRA and ACA Rules
A COBRA election notice isn’t required for coverage loss due to nonpayment. However, failure to return to work after FMLA leave is a COBRA qualifying event. ACA allows cancellation for nonpayment, but stricter state laws may apply.
Restoring Coverage
If an employee returns from FMLA leave after coverage was dropped, their health coverage must be restored.
Managing health coverage for employees on FMLA leave requires careful attention to legal requirements and company policies. By following these steps, you can ensure compliance and support your employees during their leave.
When managing COBRA coverage, it’s important to know what happens if a qualified beneficiary pays less than the full premium amount. Here’s a simplified guide:
Timely Payments and Grace Periods
Qualified beneficiaries must make timely COBRA premium payments, with a 30-day grace period each month. If the full premium isn’t paid by the end of this period, coverage can be terminated. However, there are special rules for small shortfalls.
What is an Insignificant Shortfall?
An insignificant shortfall is a payment that is less than or equal to the lesser of $50 or 10% of the required premium. For example, if the premium is $490, a shortfall of up to $49 is considered insignificant.
Handling Insignificant Shortfalls
Notify the Beneficiary: Inform them of the shortfall and give them a reasonable period (usually 30 days) to pay the difference.
Grace Period: Allow the beneficiary to pay the remaining amount during this period to avoid termination.
Accept Underpayment: Alternatively, the plan can accept the underpayment as full payment.
Best Practices
Include Procedures: Clearly outline shortfall procedures in your COBRA plan.
Prepare Notices: Have a standard notice ready for shortfalls.
Prompt Notification: Send the notice as soon as a partial payment is received.
By following these steps, you can manage COBRA coverage effectively and ensure compliance with regulations. This helps prevent unnecessary termination and gives beneficiaries a fair chance to maintain their health benefits.
NueSynergy has earned its place among the top HSA providers by offering a range of features that cater to the needs of its users:
Investment Options: NueSynergy was recognized for its extensive variety of value-based investment options, with the majority consisting of gold rated Morningstar funds.
Competitive Interest Rates: Account holders benefit from competitive interest rates on their deposits, ensuring their money grows even as they use it for medical expenses.
User-Friendly Platform: The intuitive platform makes it easy to manage accounts, track expenses, and make informed investment decisions.
National HSA Day
Earlier this week, we celebrated National HSA Day, which recognizes the importance of Health Savings Accounts (HSAs), raising awareness about their benefits. HSAs can be used not only for immediate medical expenses but also as a strategic tool for retirement planning. By understanding and utilizing HSAs, individuals can take control of their healthcare finances and secure a healthier financial future.
As we celebrate National HSA Day, it’s the perfect time to explore the benefits of HSAs and consider why NueSynergy is a top choice for managing your healthcare savings. With its competitive interest rates and robust investment options, NueSynergy stands out as a leader in the industry. Take advantage of this day to learn more about HSAs and how they can benefit you and your family.
What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. HSAs offer a triple tax benefit: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This makes HSAs a powerful tool for both current healthcare spending and long-term savings.
About NueSynergy
NueSynergy is known for industry-leading service, innovative technology, and excellence in providing full-service administration of consumer-driven and traditional account-based plans to employers of all sizes and sectors. NueSynergy offers a fully integrated suite of administration services, which include Health Savings Account (HSA), Health Reimbursement Arrangement (HRA), Flexible Spending Account (FSA), Lifestyle Savings Account (LSA), and COBRAcare+ administration as well as SpouseSaver Incentive Account, Combined Billing, Direct Billing, and Specialty Solutions. For more information, visit https://nuesynergy.com/
About Morningstar
Morningstar is a leading provider of independent investment research and insights. The company offers a wide range of products and services for individual investors, financial advisors, asset managers, and institutional investors. Morningstar provides data and research on various investment offerings, including mutual funds, ETFs, stocks, and bonds. Additionally, they offer investment management services through their subsidiaries, managing approximately $286 billion in assets as of December 31, 2023. Morningstar operates in 32 countries, empowering investor success globally.
