COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

Introduction

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides employees with the option to continue health insurance coverage after leaving their job. However, certain circumstances, such as gross misconduct, can affect the availability of this coverage. This blog post explores a unique case where an employee’s gross misconduct was discovered after retirement and the implications for COBRA coverage.

The Case

Three months ago, a bookkeeper retired from a company, electing COBRA coverage under the company’s medical plan. Recently, it was discovered that she had embezzled thousands of dollars during her tenure. The question arose: Could the company retroactively terminate her COBRA coverage due to this gross misconduct?

The Verdict

The short answer is probably not. While COBRA coverage need not be offered to employees terminated due to gross misconduct, in this case, the bookkeeper voluntarily retired and elected COBRA before her misconduct was discovered.

The Legal Perspective

If an employee is terminated for gross misconduct, there is no COBRA qualifying event for the employee or any covered dependents. However, employers should exercise caution when denying COBRA coverage due to gross misconduct. This is because COBRA does not clearly define “gross misconduct,” and courts have not agreed on a common standard. Therefore, denying COBRA coverage due to gross misconduct carries a higher-than-usual risk of litigation.

The After-Acquired Evidence

In this case, the company faces an additional obstacle. While embezzlement likely constitutes gross misconduct for COBRA purposes, the employee’s termination was due to voluntary retirement, not gross misconduct. Courts generally evaluate an employer’s decision to deny COBRA based on evidence available at the time of the employee’s discharge. The use of after-acquired evidence of gross misconduct to justify termination of employment has been rejected by the U.S. Supreme Court and several other courts in the COBRA context. Therefore, it is unlikely that a court would allow COBRA coverage to be terminated—retroactively or going forward—when gross misconduct is discovered after an employee has elected COBRA.

Conclusion

This case serves as a reminder for employers to consult with legal counsel and insurers when considering the denial of COBRA coverage due to gross misconduct. It also highlights the complexities involved in COBRA coverage termination, especially when evidence of misconduct is discovered post-employment. As always, each case is unique and should be evaluated on its own merits.

Source: Thomson Reuters

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

Maximize Your Summer Savings: 5 FSA-Eligible Essentials for a Sun-Safe Season

Summer is right around the corner (June 21)! Whether you have plans to travel or are staying closer to home, your Flexible Spending Account can help you stock up on summer essentials without breaking the bank. Depending on your activity, your FSA can provide a variety of products! Below is a list of the top items to not only enhance your summer experience but also ensure your health and wellness.

Sunscreen

Sunscreen is a no-brainer when it comes to summer. With more time spent outdoors, protecting your skin from harmful UV rays is crucial. The last thing you want to worry about before heading to the beach or the pool is sunscreen. Buying sunscreen while on vacation can also be more expensive. Click here for all FSA eligible sunscreen bundle options.

First Aid

Whether you are dealing with mosquito bites, blisters from those long summer walks, or minor cuts and scrapes, accidents happen and being prepared is key. Click here for all FSA eligible medicine and treatment care.

Shoe Inserts

Comfortable footwear is essential for enjoying summer activities. A shoe insert can help reduce foot pain offering extra padding and improve blood circulation. Click here for all FSA eligible foot care options.

Eye Care

Protecting your eyes is just as important as protecting your skin. If you wear contact lenses, you want them to stay comfortable and clean. The FSA store offers a variety of contact lens solution and eye drops to make sure your eyes don’t get irritated throughout the days. Let’s not forget about the UV rays! The FSA store also offers sunglasses with or without prescription!

Your FSA is more than just a healthcare benefit; it’s a gateway to a healthier, more enjoyable summer. By investing in these FSA-eligible essentials, you’re not only making smart financial choices but also ensuring that you and your family can fully embrace all the joys that summer has to offer. So, dive into the season with confidence, knowing that you’re covered for every sunny day ahead.

For all FSA eligible items, or other HRA and HSA eligible items, click here.

Note: The products mentioned are based on the latest available information and are subject to change. Always check with your FSA provider for the most current eligibility list.

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

Understanding IRS Rules: The Importance of Substantiating Health FSA and DCAP Claims

Introduction

In the realm of cafeteria plans, health Flexible Spending Accounts (FSAs) and Dependent Care Assistance Programs (DCAPs) play a crucial role. However, the process of claim substantiation often raises questions among administrators. This blog post aims to shed light on the IRS rules regarding claim substantiation for health FSAs and DCAPs.

The Necessity of Claim Substantiation

According to IRS rules, all health FSA and DCAP claims must be substantiated. This substantiation requires information from an independent third party describing the service or product, the date of the service or sale, and the amount of the expense. These requirements are designed to ensure that health FSAs and DCAPs reimburse only legitimate claims.

The Role of Debit Card Programs

IRS rules regarding debit card programs also require that claims be substantiated and reviewed. However, certain categories of expenses are treated as automatically substantiated without any receipts or review beyond the swipe.

The Risk of Substantiation Shortcuts

Administrators might be tempted to engage in substantiation shortcuts such as reviewing only a percentage of claims (i.e., sampling) or automatically reimbursing claims that are below a “de minimis” dollar threshold or that appear to be from medical or dependent care providers. However, these actions could jeopardize the income exclusion that would otherwise apply to reimbursements from these arrangements under the Code. This could result in all reimbursements becoming taxable, not just those approved using the impermissible techniques.

The Consequences of Non-Compliance

If a health FSA or DCAP fails to comply with applicable substantiation requirements, all employees’ elections between taxable and nontaxable benefits under the entire cafeteria plan will result in gross income. A March 2023 IRS Chief Counsel’s office memorandum reconfirms the substantiation requirements for medical and dependent care expenses, as well as the prohibition and consequences of sampling and other substantiation shortcuts.

While the process of claim substantiation might seem daunting, it is a necessary step to ensure the legitimacy of claims under health FSAs and DCAPs. Administrators must adhere to IRS rules and avoid substantiation shortcuts to maintain the tax benefits of these programs.

Source: Thomson Reuters

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

Maximizing Employer HSA Contributions: A Comprehensive Guide for Timing Strategies

In today’s ever-evolving landscape of healthcare benefits, Health Savings Accounts (HSAs) have become a cornerstone for both employers and employees. With the rising deductibles of High Deductible Health Plans (HDHPs), employers are increasingly considering making contributions to HSAs to alleviate the financial burden on their workforce. However, the question arises: when should these contributions be made?

Here, we delve into the intricacies of timing employer HSA contributions to optimize benefits for both employers and employees.

Understanding the Contribution Window

HSA contributions for a taxable year cannot precede the start of that year or extend beyond the due date for the account holder’s federal income tax return for that year. Typically, contributions must fall between January 1 of the contribution year and April 15 of the following calendar year.

Factors Influencing Timing

Several factors come into play when determining the optimal timing for employer HSA contributions:

  1. Prorating Based on Employment: Employers may prorate contributions for employees who haven’t worked the full year, either by making contributions ratably over the year or with prorated year-end contributions.
  2. Risk of Overcontribution: Employers need to be cautious of exceeding the HSA contribution limit, which aggregates employer and employee contributions. Delaying employer contributions until year-end can mitigate this risk.
  3. Employer’s Tax Deduction: For corporate taxpayers, the filing deadline without extensions is March 15. Contributions made by this date enable the company to take the deduction on the corporate tax return.
  4. Nondiscrimination Testing: Employer contributions are subject to cafeteria plan nondiscrimination rules, necessitating careful consideration of timing to avoid issues.
  5. Expense-Timing Considerations: Accelerated contributions may be beneficial for employees facing increased out-of-pocket expenses due to higher deductibles. However, this approach comes with its own set of challenges.

Ensuring Compliance and Administration

Cafeteria plan documents may need amending to accommodate new employer contributions, and timely communication with HSA trustees or custodians is crucial for crediting contributions to the correct year.

Conclusion

Navigating the timing of employer HSA contributions requires a nuanced understanding of regulatory requirements, tax implications, and employee welfare. By strategically evaluating these factors, employers can maximize the benefits of their HSA programs while ensuring compliance and efficient administration.

In conclusion, proactive planning and thoughtful execution are key to leveraging employer HSA contributions effectively, ultimately benefiting both employers and employees alike.

Source: Thomson Reuters

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

IRS Reminder: Not All Health Expenses Qualify for Deductions

In a recent news release, the Internal Revenue Service (IRS) has reiterated important guidelines regarding the eligibility of health and wellness expenses for deductions and reimbursements under health Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Medical Savings Accounts (MSAs).

What Qualifies as a Medical Expense? According to the IRS, for an expense to be considered a medical expense under Code § 213, it must be directly related to the diagnosis, cure, mitigation, treatment, or prevention of disease, or must affect the structure or function of the body. This definition excludes expenses that are solely for general health benefits.

The Risk of Nonmedical Reimbursements: The IRS warns that if health FSAs or other account-based health plans reimburse nonmedical expenses, it could result in all plan payments, including those for legitimate medical expenses, being included in participants’ taxable income.

Misleading Claims and the Importance of Diagnosis-Specific Documentation: The IRS has expressed concerns about companies misleading individuals by suggesting that a doctor’s note can transform general food and wellness expenses into medical expenses. However, without a clear connection to a diagnosis-specific treatment or activity, these expenses do not qualify as medical expenses.

Case in Point: The Denied Claim Highlighting the issue, the IRS shared an instance where an individual with diabetes was denied reimbursement for healthy food expenses through his health FSA. Despite obtaining a doctor’s note from a company that advertised such services, the claim was rejected because the food did not meet the criteria for a medical expense.

Guidance for Taxpayers: For those seeking clarity on what constitutes a reimbursable medical expense, the IRS points to its FAQs on nutrition, wellness, and general health expenses. These resources clarify that food or beverages purchased for health reasons, such as weight loss, can only be reimbursed if they do not fulfill normal nutritional needs, are used to alleviate or treat an illness, and are substantiated by a physician’s prescription.

Understanding the fine line between general wellness and medical care is crucial for taxpayers and plan administrators. As the IRS emphasizes, only expenses that meet the stringent criteria set forth in the Code will be considered for deductions and reimbursements, ensuring the integrity of health-related financial plans.

Source: Thomson Reuters

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COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?

Introduction The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides employees with the option to continue health insurance coverage after leaving ...

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