Premium Reimbursement Accounts

[Guest Lesley Sifers]

A cafeteria plan has individual health insurance premium reimbursement accounts. Employee elected to use this spending account to get reimbursed for COBRA premiums paid to former employer. The COBRA rates have declined. Can the employee change the dollar amount of the election?

[GBurns]

What is an individual health insurance premium reimbursement account and how does it work?

[Guest Lesley Sifers]

It is a separate spending account that operates like a Dependent Care or Medical FSA. It's set up for premiums for private, non-group health insurance. For example, if a person has private insurance on a dependent in college, COBRA premiums, etc. The employee pays the insurance carrier and submits a claim to the Plan for reimbursement. I don't think they are a very common feature in cafeteria plans.

[QDROphile]

I am not surprised it is not a common feature. What is the point of having such a feature in a cafeteria plan? It offers no tax benefit unless the employer's medical benefit plan is extremely unusual.

[Kirk Maldonado]

I don't think that they work. I'm almost positive that the regs say you can't reimburse the individual for premium costs out of a reimbursement account.

[SLuskin]

You can definitely reimburse private individual health insurance premiums - if your document provides for it and as long as you have a separate account for it (ie not in the medical reimbursement account).

You cannot pay COBRA through this account, because COBRA is not individual, it is part of another employer's group.

There are 2 good uses for this account. One example would be if a small employer doesn't offer, for example, dental, and you went out and bought your own individual dental plan from an agent. Another good use would be if your employer only offers an HMO, and you have a college student in another state, you might want to buy that student a plan in that state.

The administrative software that we use provides for this account as well.

[Guest Lesley Sifers]

Back in 1999, there were several threads on this topic. Rev ruling 61-146 and comments from Harry Beker at the IRS are identified as the "authority" for this type of account. Individual premiums cannot be reimbursed through a medical FSA. The premium reimbursement is a separate account with a separate election. The participant files a claim form with proof of coverage and proof of premium payment and receives a reimbursement check. In my question, however, I'm asking if the participant can change the election amount if the premium amount changes. In a premium conversion plan - where employees pay group premiums pre-tax - the dollar amount can be changed if the group premium changes. I'm just asking if that can be done on this type of reimbursement account in the absence of a "change of status" event.