COBRA, medical expense reimbursement plan, and qualified beneficiaries

[Jeff Kirtner]

Employer maintains a medical expense reimbursement plan. Under the plan, Employer contributes money each year to each employee's account, and the employee can get reimbursements for medical expenses incurred by the employee and the employee's spouse and dependents. Question: Are spouses and dependents Qualified Beneficiaries under the plan, and thus entitled to elect to have an account set up on their behalf if there is a qualfication event?

[Linda]

I’ve run into this issue too. I think the spouse and children are QBs. I think I heard somewhere that the unofficial IRS position is that in the event of divorce, the former spouse is entitled to elect COBRA on a spending account with a balance equal to the employee’s spending account balance -- in effect doubling the account! I don’t think any plan sponsor would go for that, do you? What do you think about splitting the account per capita?

[Guest Jeff Kropp]

It appears that spouses and children would be

qualified beneficiaries under a flex plan, mainly because the definitions of plan for COBRA purposes is broad. At the same time, I have not found any guidance regarding how an election by a spouse would be handled. It seems as if a spouse was never a participant in the plan and does not have a right to an employee's account balance. On the other hand, there would be no benefit to a spouse if the spouse did not have a right to a share of the employee's account. I have never heard of a spouse or dependent requesting individual COBRA coverage under a flex plan (probably because they were not offered coverage or do not understand how they might benefit from it). My approach is to offer coverage to spouses and kids in the plan documents and COBRA notices, with the hope that no one ever elects coverage.

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