FSA Grace Period - Are COBRA Continuees Eligible?

[rocknrolls2]

Company X sponsors a Code Section 125 for its employees containing a medical FSA. X administers COBRA under the medical FSA by allowing all COBRA beneficiaries the right to continue coverage for the remainder of the plan year (a calendar year). X's cafeteria plan has adopted the 2 1/2 month grace period. Employee G participates in the X cafeteria plan and selects medical, dental and the medical FSA for 2006. Assume that G terminates employment on October 20, 2006 and elects COBRA continuation for all eligible coverages (viz, medical, dental and medical FSA). If G has a $800 balance at the end of 2006, can G utilize it on medical expenses incurred during the grace period beginning 1/1/2007 and ending 3/15/2007, even though G has no further medical FSA coverage under COBRA?

If you conclude that the answer is "yes" what is your support for that position?

[leevena]

An FSA can be part of the cobra package, and assuming that the employee elected fsa for their cobra, and that the employee is still covered in the extension time frame.

Something did confuse me. You state the employee elected FSA, so why wouldn't they have coverage during the extension time frame? Is it something to do with your 2nd sentence (X administers COBRA under the medical FSA by allowing all COBRA beneficiaries the right to continue coverage for the remainder of the plan year (a calendar year).)

I read this as "the employer limits the extension until the end of the plan year, or in this situation, 2+ months? Is that true?

[MARYMM]

Company X sponsors a Code Section 125 for its employees containing a medical FSA. X administers COBRA under the medical FSA by allowing all COBRA beneficiaries the right to continue coverage for the remainder of the plan year (a calendar year). X's cafeteria plan has adopted the 2 1/2 month grace period. Employee G participates in the X cafeteria plan and selects medical, dental and the medical FSA for 2006. Assume that G terminates employment on October 20, 2006 and elects COBRA continuation for all eligible coverages (viz, medical, dental and medical FSA). If G has a $800 balance at the end of 2006, can G utilize it on medical expenses incurred during the grace period beginning 1/1/2007 and ending 3/15/2007, even though G has no further medical FSA coverage under COBRA?

If you conclude that the answer is "yes" what is your support for that position?

Yes

If an active employee participated in the FSA in 2006 but not in 2007, s/he would be able to claim reimbursement for expenses incurred during the grace period in 2007

COBRA beneficiaries have the same rights as active employees.

[rocknrolls2]

Company X sponsors a Code Section 125 for its employees containing a medical FSA. X administers COBRA under the medical FSA by allowing all COBRA beneficiaries the right to continue coverage for the remainder of the plan year (a calendar year). X's cafeteria plan has adopted the 2 1/2 month grace period. Employee G participates in the X cafeteria plan and selects medical, dental and the medical FSA for 2006. Assume that G terminates employment on October 20, 2006 and elects COBRA continuation for all eligible coverages (viz, medical, dental and medical FSA). If G has a $800 balance at the end of 2006, can G utilize it on medical expenses incurred during the grace period beginning 1/1/2007 and ending 3/15/2007, even though G has no further medical FSA coverage under COBRA?

If you conclude that the answer is "yes" what is your support for that position?

Yes

If an active employee participated in the FSA in 2006 but not in 2007, s/he would be able to claim reimbursement for expenses incurred during the grace period in 2007

COBRA beneficiaries have the same rights as active employees.

MaryMM,

Is there some basis for your statement, such as an IRS pronouncement?

[Guest ehs]

If the employee hadn't terminated, but just did not elect for the new year, would you allow the ee to submit claims incurred during the 2 1/2 month grace period (provided they had a balance)? If so, the term "similarly situated" employees should mean something to you.

[MARYMM]

If the employee hadn't terminated, but just did not elect for the new year, would you allow the ee to submit claims incurred during the 2 1/2 month grace period (provided they had a balance)? If so, the term "similarly situated" employees should mean something to you.

Under COBRA, what benefits must be covered?

Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage). A change in the benefits under the plan for the active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan

http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.html