Title 1 HIPAA COBRA Regulations for Health FSA's

[Guest DK Ellerson]

Has anyone heard anything about changes to the current regulations regarding the COBRA benefit as it applies to Health FSA's? One of my clients said they heard, that according to Title I of HIPAA, it was no longer required to offer the healthcare portion of an FSA under COBRA.

That's news to me. Any feedback would be greatly appreciated.

Thanks so much.

[papogi]

Health Care FSA rules as they relate to COBRA:

First, is this health FSA exempt from HIPAA? The health FSA is exempt from HIPAA if both of these are true:

1. The health FSA benefit does not exceed either two times the employee’s salary reduction election or, if greater, the employee’s salary reduction election plus $500. Assume, for example, an employee puts in $600, and the employer puts in $700. The employee is eligible for $1300, but only puts in $600 ($1300 is more than twice $600). This FSA, so far, is not exempt from HIPAA, and is subject to its rules. As another example, assume an employee puts in $100, and the employer puts in $600. The employee is eligible for $700, but only puts in $100 ($700 is more than $100 plus $500). Since such a large portion of the FSA is funded by the employer, the IRS sees this more like employer-provided insurance and is subject to HIPAA. Most employers’ health care FSA’s are funded entirely by employees. These are exempt from HIPAA since the IRS does not see them as employer-provided insurance.

2. The employee has other group health plan coverage for the year available from his/her employer, and the other coverage is not limited to benefits that are HIPAA excepted benefits. If the only other available coverage has limited scope benefits (exempt from HIPAA), the health FSA would not be exempt from HIPAA.

If you determine that the health FSA is exempt from HIPAA (most are), there are two special exemptions from COBRA:

1. COBRA need not be offered after the plan year in which the termination occurs. This applies if the amount paid in would exceed the benefit. The 2% administrative fee guarantees this.

2. COBRA need not be offered at all if the employee has already been reimbursed an amount equal to or greater than the amount actually paid into the account.

If the health FSA is exempt from HIPAA, and item 2 above does not apply, then flex COBRA will need to be offered for the remainder of the current plan year. All qualified beneficiaries can elect a health FSA.

If you determine that the health FSA is not exempt from HIPAA, COBRA will need to be offered under the usual COBRA rules (18, 29 or 36 months). All qualified beneficiaries can elect a health FSA.

[Guest DK Ellerson]

Thank you so much for your detailed and informative reply.