Loss of COBRA on FSA/HRA eligibility?

[Guest JCFSA]

A COBRA participant is hired by a small employer who does not have health insurance but will pay the COBRA premiums. If the new employer puts in an health FSA or HRA would that terminate the COBRA elgibility because the participant is eligible for a "group health" plan?

[mroberts]

Just because an employee is eligible for another health plan does not mean that he is forced to terminate his COBRA benefits. 99 times out of 100 the employee will take the group plan since the employer usually pays a portion of the premium. However, if the employer's does not contribute much to the plan or if the group plan has very low benefits, it's conceivable that the employee would want to continue his current medical insurance under COBRA. It sounds like the employer made an agreement with this employee, so I would check and see if anything has been signed indicating the parameters of the agreement.

[Guest JCFSA]

Sounds like you are saying that if the employee participates in the FSA, he/she does lose COBRA eligibility, which is my interpretation. Am I understanding you correctly?

Would this also apply if the new employer set up and FSA for benefits not covered by the COBRA policy? For example, if the new employer's FSA is limited to dental & vision coverage. Seems to me that this would still void the COBRA.

[mroberts]

If a person were to participate in an employer-sponsored health plan, why would he or she continue COBRA coverage for health care? It's not really correct to say the employee loses eligibility if he or she were to sign up for another health plan. Eligibility for COBRA is determined at the time benefits are lost and the type of qualifying event (remember, coverage could be continued for 18, 29 or 36 months).

If the employer were to set up only a dental or vision plan, why would the employee cancel his or her health insurance?

[Guest JCFSA]

In this case, the new employer has no medical coverage (instead is paying COBRA on behalf of the participant). If the new employer sets up a FSA or a dental plan and the employee participates, does that permit the prior employer to drop the employee's COBRA medical coverage?

[mroberts]

If the employee signs up for the medical plan being offered, yes. If he is simply offered the coverage in a group setting, he or she has the right to decline the coverage and continue his or her coverage through COBRA.

[papogi]

As long as a plan document expressly states that COBRA coverage must cease when a qualified beneficiary becomes covered under another group health plan, then this can be done. It is entirely possible for a former employer to cease COBRA coverage on this basis.

In the past, if there was a "significant gap" between the COBRA coverage and the new coverage, then the former employer must still extend COBRA coverage. While HIPAA has undone some of that language, I can't see any court ever saying that becoming covered under a new employer's FSA would constitute a replacement for the former employer's coverage.