One less-discussed aspect of COBRA administration is that health care flexible spending accounts (FSAs) are subject to COBRA. In this month’s newsletter we overview FSAs and how COBRA applies to them.
A health care FSA is considered a group health plan; therefore, it is subject to COBRA. Employers that are subject to COBRA are required to offer COBRA continuation rights to qualified beneficiaries who lose their health care FSA coverage because of a qualifying event. All general COBRA rules apply to a health care FSA in the same way they apply to coverage under other group health plans.
Employers are required to offer COBRA only if the health care FSA has a positive balance. In other words, the qualified beneficiary has contributed more than he or she has received in reimbursements. If the FSA is overspent as of the date of the qualifying event, then COBRA does not need to be offered.
To determine COBRA eligibility, the FSA plan administrator looks at the following:
Using this information, the plan administrator must determine two things:
If the remaining maximum benefit is less than the total COBRA premium that can be charged for the rest of the year, then the account is overspent, and the employer is not obligated to offer COBRA coverage for that FSA.
Let’s look at an example:
Employers are not required to allow COBRA qualified beneficiaries to elect additional amounts for their health care FSA at the beginning of a new plan year or to access to any employer contributions following the plan year of COBRA eligibility. However, any funds remaining in an active COBRA beneficiary’s FSA at the end of the current plan year (up to $500) are rolled over to the new plan year. The applicable premium for rollover funds for the new plan year is zero. The rollover is also limited to the applicable COBRA continuation period (generally 18 months).
Let’s look at another example:
During the health care FSA plan year, an employee experiences a qualifying event as of June 1, 2017. He elects health care FSA COBRA continuation and pays the required premiums for the remainder of the current plan year. At the end of the plan year, $500 of unused benefits remain.
The beneficiary can continue to submit expenses under the same terms as similarly situated non-COBRA beneficiaries in the next plan year, up to $500. The premium for the rollover during the new plan year is zero; however, the available coverage period is 18 months and terminates at the end of November 2018. COBRA coverage ends, and the health care FSA need not reimburse any expenses incurred after that date.
This summarizes our review of how COBRA applies to health care FSAs. We hope you find this month’s article helpful and you and your employees continue to find our UPMC COBRA administration services to be beneficial and easy to use. As always, please feel free to contact our department with any questions or concerns.
With the summer upon us, our staff believes it important to review some of the basics of dependent care flexible spending account (DCFSA) administration as well as some of the frequently asked questions we receive from members regarding their DCFSA accounts:
A DCFSA is a pretax benefit account used to pay for dependent care services, such as preschool, summer day camp, before or after school programs, and child or elder care.
Deductions are taken from members’ paychecks and put into their DCFSA accounts, which are administered by UPMC Benefit Management Services. Members pay for their dependent care expenses out of pocket, then submit a claim for reimbursement.
A DCFSA allows members to pay for qualified out-of-pocket dependent care expenses on a pretax basis. The money that members contribute to their DCFSA is not subject to payroll taxes, so members end up paying less in taxes and taking home more of their paycheck.
The IRS determines which expenses are eligible for reimbursement. An important requirement to note is that the care must be provided to enable the member to work or to look for work. Listed below are common services that are considered eligible expenses when all conditions are met and the person receiving these services meets the definition of a “qualifying person” (as outlined above):
As defined by the IRS, a qualifying person can be:
Here some common ineligible expenses:
This summarizes our DCFSA administration and FAQ review. We hope that you find this month’s article to be helpful and that your employees continue to find your UPMC Consumer Advantage dependent care accounts to be beneficial and easy to use. As always, please feel free to contact our department with any questions or concerns.
Disclaimer: UPMC Health Plan does not provide tax advice for members or group health plans. For questions regarding taxation issues or tax advice, please consult your tax adviser or attorney.
