HRA and COBRA

[Guest Cbick]

We had a COBRA question arise today that we are hoping to find an answer for.

The group is in their open enrollment period and they are offering an employer paid HRA plan to their active benefit eligible employees.

Do they have to offer the HRA to their current COBRA participants?

My best guess would be no. Any thoughts?

[Guest chloe]

Yes, they do. COBRA beneficiaries have the same rights as active employees and that includes open enrollment elections.

[J Simmons]

But an ER may require COBRA participants pay for all of their coverage even though the ER is paying part or all of the load for active EEs. I think that the HRA opportunity must be extended to the COBRA participants, but only if they pay up to 102% of the cost. Since the COBRA participants would not get a tax deduction for such contributions, it generally would make no tax sense for them to do so. Since the HRA coverage might count as group health coverage, the COBRA participant may choose to pay for the HRA coverage so that it may be counted towards HIPAA special enrollment rights elimination periods when he or she might become eligible for another ER's health plan.

[GBurns]

I did not think that an employee could contribute to an HRA.

[J Simmons]

The COBRA continued arrangement would not have the tax effects of an HRA, which are allowed only for ER contributions. But the 'group health plan' coverage that is COBRA continued would not have those tax attributes.

Sort of akin to how insurance coverage paid for through a cafeteria plan on a pre-tax basis by active employees is continued per COBRA election, only the employee's payments are no longer tax-free. The coverage is continued and paid by the EE, not the tax angle for payments for the coverage.

[GBurns]

In this case, the COBRA continued arrangement can only consist of the 102% medical insurance premium and an FSA (and this only if the participant had the FSA during employment).

You cannot create an HRA or a look alike for an ex-employee to contribute to. Additionally, even if you could, it would make no sense to contribute after tax, it would be more sensible to pay the provider directly as needed.

[QDROphile]

Nobody said the rules make sense in all circumstances. The effect of the rules is that no one will elect the HRA group health plan benefit as a practical matter. But fail to comply with the COBRA formalities (e.g. notice) at your peril.

[Guest LMPett]

It can make sense for a COBRA participant to choose the HRA benefit.

An HRA is just a self-insured medical plan. Employers should determine premium equivalents as they would for any other self-insured medical plan, with tiered rates (employee, employee w/spouse, etc.)

Like any other medical plan (insured or self-insured), the COBRA participant pays the monthly premium but can use the benefit immediately, up to the annual maximum. Then the participant can drop the coverage.

[GBurns]

An HRA cannot have non-employer contributions, So how is the COBRA participant going to be able to contribute ?

[Guest LMPett]

The COBRA participant is paying premium towards the cost of coverage, not directly to contributing to his/her own account. IRS Notice 2002-45 addresses HRAs and COBRA. It refers to treasury section 4980B to determine premium and apply the same premium to all QBs regardless of accout balance. Section 4980B says to use reasonable interpretation of cost (so my suggestion to use premium equivalents, by tiers). This is from IRS Notice 2002-45:

VII. COBRA Continuation Coverage

An HRA is a group health plan generally subject to the COBRA continuation

coverage requirements. If an individual elects COBRA continuation coverage, an HRA

complies with these COBRA requirements by providing for the continuation of the

maximum reimbursement amount for an individual at the time of the COBRA qualifying

event and by increasing that maximum amount at the same time and by the same

increment that it is increased for similarly situated non-COBRA beneficiaries (and by

decreasing it for claims reimbursed). Premiums are determined under the existing rules

in § 4980B. An HRA complies with the COBRA requirements for calculating the

applicable premium under § 4980B if the applicable premium is the same for qualified

beneficiaries with different total reimbursement amounts available from the HRA (and

otherwise also satisfies the requirements of § 4980B). For example, if the annual

additional reimbursement amount credited under an HRA is $1,000 and the maximum

reimbursement amount remaining for two similarly situated qualified beneficiaries at the

time of their qualifying events is $500 and $5,000, the applicable premium is the same

for each individual.

The plan rules of an HRA may provide for continued reimbursements after a

COBRA qualifying event regardless of whether a qualified beneficiary elects

continuation coverage. For example, an HRA might allow reimbursements up to the

unused maximum reimbursement amount following termination of employment. In such

a situation, an HRA subject to COBRA must still comply with the COBRA continuation

coverage requirements. If a qualified beneficiary elects COBRA continuation

coverage in addition to the continued reimbursement amount already available, an HRA

complies with the COBRA requirements by increasing the maximum reimbursement

amount at the same time and by the same increment that it is increased for similarly

situated non-COBRA beneficiaries (and by decreasing it for claims reimbursed).

[GBurns]

I do not see where there is any provision for any employee (or COBRA participant) share or contribution.

[Guest LMPett]

COBRA law says that group health plans subject to COBRA can charge applicable premium to QBs. We all agree that HRAs are subject to COBRA. Most if not all employers charge premium for COBRA.

Treasury 4980B tells you how to charge premiums (good faith interpretation of cost and by similarly situated).

The IRS notice regarding HRAs and COBRA discusses how HRA premiums are to be determined, which is by 4980B rules and NOT by account balances:

"Premiums are determined under the existing rules in § 4980B. An HRA complies with the COBRA requirements for calculating the applicable premium under § 4980B if the applicable premium is the same for qualified

beneficiaries with different total reimbursement amounts available from the HRA (and

otherwise also satisfies the requirements of § 4980B). For example, if the annual

additional reimbursement amount credited under an HRA is $1,000 and the maximum

reimbursement amount remaining for two similarly situated qualified beneficiaries at the

time of their qualifying events is $500 and $5,000, the applicable premium is the same

for each individual."

Even if an employer allows the HRA spend down (at no cost to COBRA participant who elected coverage under the group insurance plan) to the end of the year, it still has to offer HRA COBRA at open enrollment. Therefore, employers need premium equivalents for HRA.

[Don Levit]

LMPett:

I see why the gross premium would be the same for people with different HRA balances, but the net premium for the person with a $5,000 HRA should be less than the net premium for a person with a $500 HRA.

A $5,000 deductible would have a lower premium than a $500 deductible.

Don Levit

[Guest LMPett]

Don -

I agree if there are two different HRA plans at one employer (that would have to be nondiscriminatory), then two sets of premiums. The IRS example is a little confusing because it mixes apples (increased amount added to HRA for actives needs to be added to COBRAs) and oranges (different amounts remaining).

My interpretation is that under one HRA plan, the premium is the same by enrollment tier (similarly situated) regardless of amount "remaining." The same would apply if you had one group health plan that was self-insured with a $1 million max. Everyone by enrollment tier would be charged the same COBRA premium for the same plan, even if person had used $995k in benefits and another used $0.

Same with fully-insured, but the carrier has sets the premium so it's never discussed as an issue.

LPett

[GBurns]

LMPett

You have not yet explained how the HRA would/could get a contribution from the participant as was originally proposed by J Simmons. Everything you have posted and quoted refers to employer contribution, nothing refers to or even implies a participant contribution.

[Guest LMPett]

LMPett

You have not yet explained how the HRA would/could get a contribution from the participant as was originally proposed by J Simmons. Everything you have posted and quoted refers to employer contribution, nothing refers to or even implies a participant contribution.

The original question was if HRAs are subject to COBRA. The DOL and IRS say they are subject to COBRA.

JSimmons said: "I think that the HRA opportunity must be extended to the COBRA participants, but only if they pay up to 102% of the cost."

I provided the IRS guidance that explained how to calculate the cost, or premium, for COBRA continuation coverage. I'm not sure how else I can convince you

[J Simmons]

Just as in another thread it was noted that a group life policy is separate from the ERISA plan, here the group health coverage needs to be analyzed separate from the tax savings vehicle.

An HRA that meets the provisions of 105(h) excludes the value of the coverage and the reimbusements for certain health expenses from the employee's taxable income. One of those requirements for an HRA that allows carryforward of unused benefits into future years is that it can only apply to employer contributions. (An HRA that allows employees to make tax-free paycheck contributions must also comport with the 125 and health FSA requirements, which do not permit such carryforwards.)

Separate and apart from the tax requirements, there is underlying group health plan coverage that may be subject to HIPAA, COBRA, etc. The fact that the employer is promising and reimbursing employees for health expenses--whether or not in the form of an HRA to get the tax-savings--there is group health plan coverage that may be subject to these laws.

The employee must be given the option to continue for a time that group health plan coverage if COBRA applies to the year coverage would otherwise end. The employer may insist that the employee pay up to 102% of the cost of the continued coverage. If it is a former EE that is no longer receiving paychecks from the employer, then the former EE has no tax-savings mechanism to use to pay for the cost of COBRA continued coverage. That does not mean that the EE cannot pay the ER with dollars (after-tax ones) for the continued coverage he must be allowed to elect. All of the terms of the HRA except the one about the ER bearing the expense would apply to the continued coverage.