Reimbursing Terminated Participants

[Guest AEC]

I am fairly new to cafeteria plan administration, and I have a question I'm hoping all you experts can help me out with.

I know that under a healthcare reimbursement plan, a participant is entitled to be reimbursed up to their annual election at any time during the plan year. But what happens if a participant terminates employment and then timely submits a claim for reimbursement? Provided the services were incurred before their termination date, are they eligible to be reimbursed up to their annual election amount, even though they will not contribute the remainder of their annual election, or are they only entitled to their contributions to date for that plan year?

I would really appreciate any input!

[Guest llerner]

They are entitled to the entire election amount if the services were rendered prior to their termination date. It works like a self-funded health plan. For example, if you have your gallbladder removed and then quit, your insurance will still pay for it. If you have this done after you quit, (forget about COBRA for a min.) they won't pay. This is the IRS logic because if they quit and haven't contributed but haven't used their benefit, the employer keeps those funds to make up for the funds that they may have paid out when someone quits prior to contributing.

(Insurance example again, even if you have paid premiums, once you don't have benefits and terminate (not electing COBRA), if you get sick, you have no insurance).

Also, when the employee quits they are entitled to elect COBRA however they won't if they have used up all their reimbursement for the plan year (the COBRA ends at plan year end - year terminated).

A very helpful place for you to start is benefitslink Cafeteria plan question and answers.