HRA and COBRA

[Guest Brenda N.]

Has it been determined how to calculate COBRA premiums for HRAs? Is an ex-spouse entitled

to COBRA on 100% of the balance in the employee's HRA at the time of the divorce?

[Ron Snyder]

This has not been finally determined but is under consideration by the IRS. A committee I serve on made a submission on this topic (and others related to HRAs) that included our suggestions. The following quotation is from our committee's submission:

"Any reasonable method of measuring the “value of coverage” is acceptable, so long as the measurement method is consistent from year to year (or is changed for a substantial business reason or in connection with the redesign of the program). In particular, if an employer uses the safe harbor method for determining the applicable premium for a group of HRAs for purposes of COBRA, such an employer should also be permitted to treat this applicable premium (reasonably determined) as the value of coverage under any individual HRA in the group. The employer’s obligation to use this same value under COBRA, combined with the employer’s natural inclination not to understate the COBRA applicable premium, will provide an automatic check on inappropriate valuation. In addition, this avoids the daunting task of valuing each, individual HRA. With respect to HRAs that have received a single lifetime contribution, the value of the HRA at its inception should determine its status as an FSA for the life of the arrangement. This is the same approach that employers apply to major medical plans that have lifetime limits, i.e., the plan does not become treated as an FSA if a particular participant’s lifetime limitation falls to less than 500% of the premium cost of the coverage."